Yes, PSLF is really happening

People often ask if I personally know anyone who has gotten their loans forgiven via PSLF since the first crop of folks became eligible in October 2017. It’s a reasonable question, but it’s also the wrong one.

Because, despite the legitimacy of the PSLF program, there are very few people who could have actually benefitted in the initial crop. This stems from the fascinating(ly terrible) way the program was rolled out to discourage the older generation of folks who were already in repayment to utilize it.

Nonetheless, the proof that PSLF is real has arrived. The Federal Student Aid office recently released their new student loan report (conveniently summarized here):

The Public Service Loan Forgiveness (PSLF) Program, which was established under the College Cost Reduction and Access Act of 2007, permits Direct Loan (DL) borrowers who make 120 qualifying monthly payments under a qualifying repayment plan, while working full-time for a qualifying employer, to have the remainder of their balance forgiven. October 2017 was the first month that borrowers could potentially qualify for loan forgiveness under this program, provided they met all program requirements since the inception of the program.

As of June 30, 2018, approximately 28,000 borrowers had submitted almost 33,000 applications for loan forgiveness under this program. Of the approximately 29,000 applications that have been processed, more than 70 percent of them have been denied due to not meeting the program requirements (such as having eligible loans, 120 qualifying payments, or qualifying employment). In late May 2018, FSA initiated outreach efforts to those borrowers who may potentially qualify for the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) opportunity, which provides limited, additional conditions under which borrowers may be eligible for loan forgiveness if some or all of the Direct Loan payments were made under a non-qualifying repayment plan for PSLF.

Another 28 percent of PSLF applications were denied due to missing or incomplete information on the form. These borrowers have been advised to submit a complete application so a determination of their eligibility can be made. Almost 300 applications have been approved by the PSLF loan servicer as meeting all program requirements, resulting in $5.52 million in processed discharges for 96 unique borrowers.

99% rejection sounds terrible, but it’s actually exactly what you would expect if the feds were honoring the specifics of the program as advertised. Recent graduates—who essentially all hold qualifying loans—tend to focus on the qualifying employment aspect of the rules. But for the folks who would theoretically have been eligible in 2017, the lynchpin was really qualifying loans and, to a somewhat lesser extent (see below), qualifying repayment plans.

Allow me to explain.

The PSLF formula:

Eligible Loans
+ Qualifying Payments
+ Qualifying Work
x 120 months (10 years)

= Public Service Loan Forgiveness

 

The Loans

“Eligible loans” means Direct Loans. Direct loans are given “directly” by the government, which is what all recent students use who don’t take out additional private loans. Back in 2007, that wasn’t the case. Students received loans from private banks that were “guaranteed” by the government under the FFEL program. During the financial crisis in 2008, the government stepped in and used the Direct Loan program to provide most educational funding. The FFEL program was completely shuttered in 2010.

Anyone in repayment during the late 2000s or finishing school near 2007-8 would not have had eligible loans without taking additional steps to consolidate them into a Direct consolidation loan. No one who didn’t hear about the program back then and read the fine print would have done the right thing. Huge swaths of people who thought they were eligible and applied for PSLF were denied for exactly this reason. They were never eligible.

If any of these folks had filed a single PSLF employment certification form, they would have found out the news and been able to change course accordingly.

Take home point: loan forgiveness is too important to not plan.

 

The Payment Plans

This is the second reason for denial, but at least some of these folks will win out eventually.

“Qualifying payments” are full, on-time, payments while utilizing a qualifying repayment plan: IBR, ICR, PAYE, REPAYE, or Standard. The Extended and Graduated plans do not count. IBR, the first of the new generation of income-driven repayment plans, started in 2009. So again, by definition, the folks making payments toward PSLF back in 2007 and 2008 couldn’t have even been using it yet (the lucky ones were using ICR). Unfortunately, many applicants were on the graduated or extended payment plans, which—again—do not count. 

Luckily, Congress decided this technicality was too cruel and passed a temporary $300 million PSLF expansion to help people denied for this on a first-come-first-served basis.

In order to benefit from the new law, you need to apply to PSLF and also file a TEPSLF request.

Since the government doesn’t actually hold the FFEL loans, there is essentially no chance of them extending anything extra to the folks denied for having the wrong kind of loans.

 

The Future

The initial disappointment and underwhelming numbers from the initial stages of PSLF were an inevitability.

Over the next few years, the numbers of successful applicants will skyrocket. Not accounting for undergraduate borrowing, medical students graduating in 2012, for example, would almost universally have qualifying loans and been using qualifying repayment plans. Lawyers from 2011, some masters degree holders in 2009 and 2010, etc. Folks whose schooling began ten years ago will be part of a cohort that didn’t require the same big steps to have been made correctly early on that these initial failures succumbed to.

We’ll see a small uptick this year and then big rises thereafter. This is only the beginning.

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