Student loan cancellation: what can be fixed?

ByRichard C. Sloan

Oct 16, 2021

A limited waiver announced by the US Department of Education should immediately wipe the slate clean for 22,000 student borrowers seeking public service loan forgiveness and speed up the process for at least 550,000 in total.

This is not the general student loan exemption borrowers can dream of. Instead, it’s the latest example of the Biden administration’s strategy to tackle student loan debt through existing programs.

“The Biden administration is committed to overhauling the student loan system and how it works – if the programs are easy to access and if people can be forgiven – and I think that’s a step. important forward on this path, ”said Sarah Sattelmeyer, project director of education, opportunities and mobility in the higher education initiative at New America, a public policy think tank.

Neither President Joe Biden nor Congress has pledged to forgive mass lending despite calls to do so from prominent Democrats, state officials and consumer rights groups.

But since Biden’s tenure began, the Education Department estimates that more than $ 11.5 billion in loans have been canceled for more than 580,000 borrowers thanks to updates to existing forgiveness programs.

The department clears backlogs of borrowers who have been defrauded by their schools, who faced school closings before graduating, and who have permanent disabilities.

Here are the improvements that have been made so far.

Where is the delivery of civil service loans?

The Education Department released new guidelines in October to ease the tedious process of applying for a Public Service Loan Remission, or PSLF. This is a program to pay off the debts of borrowers who work for public service employers, such as the government or public schools and hospitals.

Forgiveness through the PSLF has been notoriously difficult to obtain due to complex rules regarding the type of loans and repayment plans allowed. Numerous technical details prevented the payments from counting into the 120 needed for the landfill. And then there is the paperwork: 10 years of proof of employment.

Due to bureaucracy, only about 1% of the nearly 400,000 borrowers who applied have ever had loans canceled through the PSLF, according to federal student aid data.

When the PSLF program was created, total student debt was around $ 550 billion, says Seth Frotman, executive director of the Student Borrower Protection Center. “We were concerned about the impact of student debt on the viability of those who enter and stay in public service fields,” says Frotman. “It’s even more important that this program works in light of where we are today, in the face of a $ 1.7 trillion student debt crisis.

The ministry has already looked for quick fixes, such as combining the job eligibility forms with the application and temporarily extending eligibility to certain borrowers. But the education ministry acknowledged in a June 2021 memo that those efforts were not enough to stem “the confusion and frustration.”

“There are a lot of people who were paying off their federal loans, working in a qualifying job, thinking they were working for forgiveness only to find out, when they finally applied, that they had the wrong type of loan.” , like a FFEL loan, or they weren’t in the right kind of repayment plan, ”says Bradley Custer, senior policy analyst for higher education at the Center for American Progress, a public policy think tank.

What’s new for borrowers looking for PSLF

Under the new limited exemption from the PSLF, borrowers who worked full-time for an eligible public service employer can get past loan payments recorded in the PSLF, even if the payments were:

  • Realized on Family Federal Education Loan program loans (i.e. held in commerce) or disqualified Perkins loans, provided they consolidate into a direct loan.
  • Previously consolidated, which resets the payments that counted for the PSLF to zero.
  • Made in the wrong repayment plan, such as a standard, escalation, or extended plan.
  • Done late.
  • On hiatus while the borrower was on active service in the military.

Parent PLUS borrowers have been excluded from this limited waiver; these borrowers can still apply, but the old application rules remain. Student loan experts don’t know why parent PLUS borrowers were left out.

Betsy Mayotte, president and founder of the Institute of Student Loan Advisors, says the waiver resolves “the operational issues we’ve seen so far that have affected the PSLF program,” but still encourages borrowers to know all about them. details of the PSLF rules. to have the best chance of getting their loans paid off.

Borrowers who are entitled to relief under the new limited exemption must submit a PSLF form by October 31, 2022 to be eligible. As of now, borrowers can consolidate their student loans through the Federal Student Aid website and submit the PSLF form to certify employment and apply to the PSLF.

Federal student loan payments are suspended until January 31, 2022. During this forbearance, which began in March 2020, each month of non-payment counts towards the remission.

Borrowers should also remember this: You never have to pay anyone to apply for PSLF, consolidate debt, or access the benefits of PSLF waiver. Any company promising to do the job for you is a scam.

What else has changed and what’s next

The Ministry of Education under Secretary Miguel Cardona updated other existing discharge programs, including:

  • Defending Borrowers Against Repayment: Over $ 1.5 billion in claims among nearly 92,000 borrowers who have been deceived or misled by their schools have been approved.
  • Discharge from closed schools: $ 1.1 billion was automatically made available to 115,000 borrowers who attended the closed ITT technical institute. Borrowers who attended a closed school between November 1, 2013 and July 1, 2020 can expect an automatic discharge of their loan as long as they have not enrolled in another school within three years of the closure.
  • Full and Permanent Disability Release: A total of $ 7.1 billion among 364,000 borrowers who qualify as disabled have been released. To identify eligible future borrowers, data will be shared with the Ministry of Education, Ministries of Social Security and Veterans Affairs. Requests for income documentation are also suspended.

Further changes are expected to be made to the PSLF by the end of 2022, according to the education ministry.

Also evolving: who manages student loans

Following in the footsteps of other federal loan managers Navient and GSMR, FedLoan, the private manager who handles all loans for borrowers on track for the PSLF, terminates his contract after December 31, 2021. This means borrowers who looking for the PSLF will have a new manager. Before losing access to your FedLoan account, download all payment records to make sure nothing gets lost during the transition.

According to the department, loan manager MOHELA is taking over the portfolio from FedLoan, but it is still unclear which manager will manage the PSLF in the future.

Borrowers should update contact information in their Federal Student Aid, or FSA, accounts to receive information directly from the government about the PSLF waiver.

About the Author: Anna Helhoski is a writer and the NerdWallet authority on student loans. His work has appeared in The Associated Press, The New York Times, The Washington Post, and USA Today.