With burgeoning student debt on the minds of matriculants and graduates alike, student loan forgiveness programs offer a sliver of hope to worried borrowers. Those entering certain professions or meeting certain income requirements may qualify for forgiveness of their federal student loans after a certain period.

Income-driven repayment (IDR) plans, Public Service Loan Forgiveness (PLSF), and the Teacher Loan Forgiveness (TLF) program all allow borrowers to erase their debt if they meet the programs’ criteria. Particularly for those pursuing low-income careers and vocations in the public service sector, these criteria, which are usually quite stringent, may seem like a small price to pay for the absolution of educational debt that might otherwise be crushing.

However, the length of the terms under which income and employment criteria must be met may ultimately be unrealistic for many. Even those who do meet those criteria must navigate a labyrinthine loan servicing structure that provokes accusations of providing misleading information that leaves borrowers who thought they were on track to forgiveness right back where they started: with a full balance of debt, often with significant additional interest.

Though these programs may indeed be useful to a small sector of the borrowing population, those who seek to have their debt forgiven would do well to educate themselves on the full scope of the qualifying factors and their associated commitments.

 

Types of Forgiveness

The first program to offer student loan forgiveness was the Income-Contingent Repayment (ICR) plan made available in 1993. It offers lower federal loan payments based on discretionary income. On this plan, the remainder of the loan balance is forgiven after 25 years.

In 2009, the Income-Based Repayment (IBR) was rolled out. It allowed for even lower monthly payments and forgiveness of federal loans after 20 years for new borrowers as of 2014 and after 25 years for borrowers whose loans were issued prior to 2014.

The Pay As You Earn (PAYE) plan, initiated in 2012, and Revised Pay As You Earn (REPAYE) plan, initiated in 2015, offer 20-year repayment plans to a greater subset of borrowers. (REPAYE retains a 25-year repayment term if the borrower has any graduate student loans.) As with other income-driven repayment plans, the remaining loan balance is forgiven at the end of the repayment term.

However, the cancelled debt is considered taxable income with all four income-driven repayment programs.

The Teacher Loan Forgiveness (TLF) program, initiated in 1998, allows for the forgiveness of up to $17,500 in Federal Stafford loans for science, mathematics and special education teachers completing five consecutive years of service at a certified low-income school.

Teachers in other disciplines who complete the same term of service are eligible for forgiveness of up to $5,000 in federal loans. The forgiven amount is not taxable.

The Public Service Loan Forgiveness (PLSF) program, instituted in 2007, allows college graduates who work full-time in a qualifying public service job for 10 years, are enrolled in an income-driven repayment plan, and make 120 on-time payments to receive forgiveness of their Federal Direct Loans at the end of the term. The payments and terms of employment do not necessarily have to be consecutive.

Qualifying public service jobs include employment with government agencies, non-profit 501(c)(3) or other non-profit organizations, including AmeriCorps or the Peace Corps, and other public service organizations such as fire departments and public hospitals.

Many types of employment that some might believe qualify them for the program are excluded: partisan political organizations, work with government contractors, and labor unions, among others. Nonetheless, in 2013, the Consumer Financial Protection Bureau estimated that a full quarter of the American workforce might qualify.

Specific programs also exist for such professions as nursing, veterinary medicine, and law. Applicants typically must work for a government agency, serve low-income people or serve in a shortage area for a certain amount of time.

Borrower defense to repayment allows borrowers who used federal loans to attend colleges that violated state law by misrepresenting their educational services or engaged in misconduct relating to the educational services or federal student loans, to have all or part of their federal student loan debt forgiven.

Obstacles to Forgiveness

For many borrowers, the requirements of the various loan forgiveness programs will be unrealistic. The prospect of working for low pay for extended periods of time may simply be untenable, debt obligations aside. Forestalling career advancement in more appealing positions, not to mention other lifestyle improvements, may prove to be a deterrent to many who might otherwise wish to take advantage of these programs.

Further, if borrowers find themselves unable to serve out the terms that will allow them to have their debt forgiven, they will often end up with more debt. Borrowers may be better served by taking higher-paying work and enduring the financial consequences of their debt until it is paid off. This may be the least burdensome option, for all of its discontents.

Interest continues to accrue even when borrowers are enrolled in a loan forgiveness program. If they leave the loan forgiveness programs, they may in fact be on the hook for greater amounts than they would have had they had simply paid down their loans while working in a more-remunerative position for the entire term of repayment.

If a borrower on track for public service loan forgiveness leaves an eligible position, their ongoing loan payments do not count toward student loan forgiveness.

The prospect of loan forgiveness does not really provide an incentive for borrowers to enter public service fields, so much as removing the debt as a disincentive for public-spirited borrowers. Most borrowers would be better off financially if they worked for the private sector.

The Misadministration of Student Loan Forgiveness Programs

Very Few Borrowers Have Qualified for PSLF

The Public Service Loan Forgiveness (PSLF) program has been the subject of intense criticism since its first applicants ended their ten-year repayment terms and became eligible for forgiveness in October 2017.

Numerous applicants have found that they are ineligible, often after years of paying on plans that they thought would qualify them for forgiveness. Some applicants have accused their loan services of misleading them into believing that they were on track to loan forgiveness when they were not. Other applicants have accused FedLoan Servicing, which handles all PSLF loan paperwork, of incorrectly counting the number of qualifying payments.

Some borrowers have found that their employer certifications, which verified that they were working for an eligible employer, were in fact invalid due to processing errors or a change in federal rules. No official, comprehensive list of employers exists, as attested in a May 2017 filing by the U.S. Department of Education, which claimed that these certifications were non-binding.

And some applicants discovered that the strict payment stipulations, which require the on-time payments to be made in the exact amount, had rendered months in which overpayments were made ineligible for the 120 month total.

Others were informed that they were enrolled in non-qualified repayment plans such as graduated or extended repayment or that the consolidation of their loans had negated their previous payments.

In June 2017, the Consumer Financial Protection Bureau (CFPB) released a damning report that attributed these problems to misleading and inaccurate information provided by FedLoan Servicing. In August 2018, the bureau’s student loan ombudsman, who had overseen the compilation of the report, resigned in protest over the bureau’s inaction. The Government Accountability Office (GAO) broadly corroborated the CFPB’s findings in September 2018.

The U.S. Department of Education was sued in December 2016 by the American Bar Association (ABA) and several individual plaintiffs over these failures, notably changes in loan eligibility. A Washington, D.C. district court judge ruled in their favor in February 2019. And in August 2017, Massachusetts Attorney General Maura Healey sued FedLoan Servicing for overcharging borrowers, thus reducing the amount of forgiveness they were eligible for under PSLF.

As of September 2018, only 206 out of the 49,669 borrowers who had applied to the program had had their loans forgiven according to the Department of Education. Of these, 32,409 did not meet the program requirements and 11,892 were missing information.

A portion of the latter cohort may be eligible for forgiveness after they submit their missing information. (So far, only a handful have been approved.) Most of the former, however, is likely out of luck unless their loans were included in the expanded criteria under a stop-gap program passed in March 2018 as a part of the appropriations bill.

Known as Temporary Expanded PSLF (TEPSLF), the $350 million program allows a limited number of those who were rejected from PSLF due to having been on a non-qualifying repayment plan to obtain relief.

Borrowers who believe that their denials were made in error have been encouraged to contact the Federal Student Aid Ombudsman Group or to file a complaint with the CFPB.

Navient and IDRs

In January 2017, the CFPB sued Navient, one of the nation’s largest student loan servicers, for, among other things, steering borrowers toward forbearance rather than income-driven repayment plans. Five states later sued as well.

The CFPB and the state attorneys general alleged that Navient had urged borrowers into forbearance rather than income-driven repayment in an effort to save itself the administrative costs of entering borrowers into those programs. Income-driven repayment plans might be a better option for some borrowers due to the possibility of loan forgiveness. The suits claim that Navient’s failure to offer these plans racked up billions of dollars in interest for borrowers put into forbearance instead.

However, further analysis in the wake of the suits has suggested that many of these borrowers were informed of income-driven repayment options and chose forbearance instead, or were not eligible for lower payments under income-driven repayment plans in the first place. The CFPB lost more than half of its witnesses in the wake of these revelations.

Legislative Risks to Loan Forgiveness

A number of legislative developments threaten the future of student loan forgiveness programs.

President Donald Trump’s 2020 budget calls for the elimination of the PSLF program. It also suggests that income-driven repayment programs be streamlined into one program that raises payments to 12.5% of discretionary income and allows forgiveness after 15 years of repayment. (Graduate students would, however, need to wait twice that amount of time.)

The Republican PROSPER Act, introduced in December 2017, which proposed major overhauls to the Higher Education Act of 1965, similarly sought to eliminate PSLF and consolidate income-driven repayment programs.

Borrowers currently on PSLF plans would still be eligible for forgiveness but no new borrowers would be able to enroll. Higher payments on income-driven repayment programs would likely make those programs less appealing.

The Trump administration has also come under fire for its efforts to block defense to repayment options. In October 2018, a series of lawsuits successfully forced the U.S. Department of Education to allow applications for this program to proceed, though borrowers have not yet had their federal student loans cancelled by the Trump administration. The Trump administration may be stonewalling borrowers while further efforts to restrict the program are in the offing.

Student loan forgiveness, thus, exists in a state of limbo. Its utility is limited to a relatively small subset of current borrowers. And future borrowers may not have the option at all.