U.S. Senate Proposes Overhaul of Public Service Loan Forgiveness

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By Mark Kantrowitz

May 20, 2020

Very few borrowers have qualified for public service loan forgiveness, in part because of the complexity of the public service loan forgiveness program. A group of Senators have introduced legislation to streamline and simplify the loan forgiveness program. The new loan forgiveness option is provided only for new loans that are made after the date of enactment of the law.

The Problem with Public Service Loan Forgiveness

Only 1.7% of applications for Public Service Loan Forgiveness (PSLF) have been approved, as of March 2020. An additional 0.9% of applications have been approved through the Temporary Expanded Public Service Loan Forgiveness (TEPSLF).

Public Service Loan Forgiveness also requires borrowers to repay their student loans for ten years before they can receive any loan forgiveness. A single error early in the repayment process can derail progress toward loan forgiveness, requiring the borrower to repay their loans for an additional ten years before they can obtain loan forgiveness.

Common errors include loans that are ineligible, enrolling in the wrong repayment plan or having a job that doesn’t qualify.

Improvements in the Loan Forgiveness Program

Sen. Richard Blumenthal (D-CT) and nine of his colleagues introduced the Strengthening Loan Forgiveness for Public Servants During the COVID-19 6 Crisis Act on May 19, 2020 to address these problems.

The goal of the legislation is to make it easier for doctors, nurses, teachers, police, public health workers and other borrowers who work in public service jobs to qualify for loan forgiveness.

The legislation adds an option for partial up-front loan forgiveness, as an alternative to the all-or-nothing back-end loan forgiveness provided by the current Public Service Loan Forgiveness program.

Under the new up-front loan forgiveness option, a portion of the borrower’s eligible loans will be forgiven every two years.

  • 15% will be forgiven after two years
  • 15% will be forgiven after four years
  • 20% will be forgiven after six years
  • 20% will be forgiven after eight years
  • 30% will be forgiven after ten years

The percentages are based on the loan balance when the borrower started working in a public service job, not the current loan balance.

When a borrower files an Employment Certification Form (ECF), their loans will be placed in a deferment while they are employed in a qualifying public service job.

When a portion of the loan balance is forgiven, the interest that accrued on the forgiven loan balance will be cancelled.

The legislation is similar to a bill introduced previously in the U.S. House of Representatives by Rep. Eric Swalwell (D-CA-15).

Fix for Public Service Employment Disruptions

The CARES Act provides a payment pause and interest waiver for certain federal student loans, including Direct Loans, through September 30, 2020. The paused payments still count as qualifying payments toward Public Service Loan Forgiveness.

However, if the borrower loses their public service job or is furloughed, the paused payments will not count toward loan forgiveness.

The Senate legislation addresses this by allowing the paused payments to qualify toward loan forgiveness even if the borrower’s public service employment is disrupted because of the coronavirus pandemic.

The borrower will be deemed to have been working in a qualifying public service job for the duration of the public health emergency if they resume working in a qualifying public service job within 6 months after the end of the public health emergency.

If a borrower qualifies for partial loan forgiveness during the public health emergency, they will receive it even if their public service employment has been disrupted.

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