Thought Experiment: Borrow a Direct Loan as soon as possible in order to secure the possibility of PSLF

Back when the Republicans held the Presidency, Senate, and the House, there was constant bellyaching about when the government would shutter the PSLF program. As we’ve discussed previously, despite various proposals, any practical discussion that suggested an imminent demise was either unfounded, misguided, and/or primarily promoted by news organizations who need advertising eyeballs or by those who profit from private student loan refinancing.

If you’ve been reading before, you’ll know that any upcoming changes won’t affect old/current borrowers, who will be grandfathered. PSLF is in your master promissory note.

That said, a program cancellation would change things for those who would be considered new borrowers after its implementation. For example, a high school student planning on one day being a doctor could find their future plans derailed, as might a college student whose parents have generously funded their education.

With Democrats controlling the House and most Democrat contenders for presidency supporting drastically expanded loan forgiveness, it would seem the odds of a program cancellation in the short term are lower than many would have anticipated even just a year ago.

But let’s do a thought experiment:

If someone wants to guarantee the ability to be eligible for the PSLF program, they should take out a student loan of some kind as early as possible.

Why? Because changes only affect new borrowers, and anyone with a current loan is automatically an old/current borrower. Someone who has already borrowed money with the expectation that it can be forgiven and holding onto a master promissory note stating the same should be safe from any future changes.

So a freshman in college who doesn’t really need a loan but qualifies for financial aid could take out even a token loan just to open that eligibility door. If you want to go to graduate school, perhaps one should fill out the FAFSA no matter what, even if your parents were planning on taking care of college for you.

Caveat 1: I’m not really recommending anyone do anything. It’s just an illustration of the world we live in and the system we work with.

Caveat 2: There’s no guarantee it would work that way fully. In the event of a PSLF-closure, a borrower’s outstanding/current loans would certainly qualify, and past proposals would also nearly guarantee that the loans required to finish their current course of study would also qualify. But the loans required for a future graduate degree? That wouldn’t necessarily have to make it in. The goal of taking an early token loan would be to give yourself the best chance of locking in forgiveness while not costing anything meaningful from accruing interest.

Caveat 3: Sometimes being an old borrower isn’t so great. PAYE was an improved income-driven repayment plan compared with IBR and was specifically not made available to old borrowers when it was released. Taking out a loan earlier than you need might keep the PSLF doors open, but it could close others, especially since the PSLF doors don’t seem to be closing yet. Given how long it takes Congress to do anything, one can easily see a scenario where imminent program changes are telegraphed way in advance.

Caveat 4: With regards to the Caveat 3, I personally think it is unlikely given the optics of recent PSLF denials and how loan politics have changed for any good new programs to be withheld from old borrowers in the future.

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