It Just Got a Lot Easier to Qualify for Public Service Loan Forgiveness

The U.S. Department of Education is streamlining its most criticized loan forgiveness program, making it easier for more than half a million borrowers who work in public sector jobs to have their loans canceled.

The changes to Public Service Loan Forgiveness will help alleviate problems caused by complicated eligibility rules, loan servicing errors and other technicalities, the Education Department said in a news release announcing the changes. Most of the improvements stem from a temporary waiver running through October 2022 that expands what is considered a payment that counts toward forgiveness.

The department said that the actions announced Wednesday "will restore the promise of PSLF."

Public Service Loan Forgiveness, often called PSLF, was created to offer loan relief for borrowers who spend at least a decade working in often low-paying government or non-profit jobs. Borrowers have to make 120 qualifying monthly payments before getting their loans canceled.

Yet four years after the first group of borrowers would have been eligible for forgiveness, the program is notorious for its low rate of approved applications.

Altogether, the Education Department estimates the changes announced Wednesday will help at least 550,00 borrowers automatically qualify for forgiveness faster, including some 22,000 who will be immediately eligible to have a combined $1.4 billion in loans canceled. The government also estimates there are about 27,000 borrowers who could see roughly $2.8 billion forgiven if they can show they were employed in an eligible job.

Those numbers might sound small, given that millions of borrowers work in public sector jobs. But they represent a significant expansion in who has been able to succeed in this program: Only 16,000 borrowers have received forgiveness in the past four years.

Plus, a larger count of borrowers will benefit from other parts of the announced changes. Here's a breakdown of how the biggest changes will work:

These changes apply to student borrowers only

The changes apply to every type of student loan, including FFEL, Perkins, Direct/Stafford and Graduate Plus loans. But they do not apply to Parent PLUS loans.

Parent borrowers can access PSLF, if they first consolidate their loans, then enroll in a repayment plan called income-contingent repayment. It’s the only income-based plan that parent borrowers are eligible for. But the changes announced Wednesday will not help parent borrowers working toward PSLF.

The department will count payments that were previously considered ineligible

Borrowers seeking forgiveness via PSLF have to work in a non-profit or public sector job, have a certain type of loan, and have to make 120 payments through the correct type of repayment plan to have their loans forgiven. The second two steps — having the correct type of loan and correct payment plan — have blocked thousands of people who otherwise would have qualified from accessing loan forgiveness.

But now, for a limited time, the government will count any prior payments made regardless of the loan type or repayment plan. You simply need to have made the payments while working for a qualifying employer.

More specifically: payments that were made on Federal Family Education Loans or Perkins loans will count toward the required 120 payments as long as the loan is consolidated into the Direct Loan program before Oct. 31, 2022. (All federal loans issued after July 1, 2010 are Direct loans. If you have older student loans, then they are likely FFEL loans, which need to be consolidated before you start making progress toward PSLF.)

The department will start automatically adjusting payment counts to reflect the waiver for borrowers who have already consolidated their loans into the Direct Loan program and have certified their employment for PSLF. Borrowers who have not yet consolidated their loans or certified their employment need to do so in the next year to take advantage of the waiver.

The department says updating borrower account information to reflect the new payment counts may take several months.

Payments that were slightly short or late will count toward forgiveness

In some cases, borrowers have missed out on credit toward PSLF forgiveness because their payments were off by a couple pennies or late by only a few days.

Under the new changes, borrowers affected by this issue will see their payment count updated to include those payments that were slightly off. The department says it will automatically adjust PSLF payment counts for payments made on or before Oct. 31, 2021 for borrowers who have already certified some employment for PSLF. Borrowers who have not yet applied for PSLF forgiveness or certified employment but do so by Oct. 31, 2022 will also benefit from this change.

The department did not say how late or how short the payments can be to be counted.

The Education Department will review all denied PSLF applications

One of the most publicized aspects of PSLF has been the program’s atrocious rates of approval for borrowers applying for forgiveness. Since the first borrowers have been eligible for forgiveness in the fall of 2017, about 98% of applications have been rejected.

The Education Department has said that, in most cases, the applications weren't eligible for forgiveness because borrowers hadn't made enough qualifying payments, often because some or all of their payments were made on the wrong type of loan or in the wrong repayment plan. Those problems should be helped by the waiver announced Wednesday.

Still, there have been other reasons why borrowers face delayed forgiveness. A 2017 report by the Consumer Financial Protection Bureau, for example, found a wide range of problems with how loan servicers handle PSLF cases, including incorrectly processed payments.

More recently, the Student Borrower Protection Center found that thousands of borrowers were denied forgiveness because of minor servicing errors or paperwork issues.

The department says it will now review all of the applications for PSLF that have been denied and ultimately offer a temporary process of reconsideration for borrowers who believe their application was rejected because of processing errors. It's unclear currently what steps borrowers will have to take to have their application reconsidered.

Most of these changes are temporary

Most of these changes are a limited-time offer, because the Education Department says it is using special flexibilities granted to it during the COVID-19 national emergency.

That said, there is a regulatory process known as negotiated rule-making happening this week, during which the Education Department and negotiators representing a variety of stakeholders consider new higher education rules. One of the topics up for discussion are permanent changes to improve Public Service Loan Forgiveness.

The department’s regulatory proposal includes changes that would make it easier for borrowers to make progress toward forgiveness, including simplifying qualifying payment rules and allowing certain types of deferments and forbearances to count as progress toward PSLF. But any changes that come as a result of the negotiated rule-making sessions wouldn't take effect until next year at the earliest.

For more information on the changes announced Wednesday, borrowers can go to: StudentAid.gov/PSLFWaiver

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