If you’re counting on loan forgiveness under Public Service Loan Forgiveness (PSLF), you’ll want to read this. Less than 1% of the borrowers who applied for PSLF have actually received forgiveness. What exactly is going on? Why are so few borrowers being granted PSLF?
Estimated read time ~10 minutes, estimated watch time ~7.5 min at 1.5x speed.
Reviewing the Rate of Forgiveness
First let’s look at the borrowers who have applied for PSLF and the categories they were sorted into. While less than 1% actually received loan forgiveness, a little over 1% have been approved for forgiveness but haven’t yet had their loans discharged.
It’s surprising to me that in June of 2018 289 borrowers had been approved for forgiveness, but come Sept of 2018 still only 206 had actually received that forgiveness. While FedLoan Servicing is the one to approve applications, the Department of Education gives the final notice to FedLoan to discharge the student loan. That process can take some time. It’s likely these 83 borrowers are waiting for the Department of Education
Reminder: If you’ve submitted your PSLF application and are waiting for discharge you must continue to remain employed full-time for an eligible employer & continue making eligible monthly payments.
The good news for borrowers, is that although they’re required to continue making monthly payments, they will be refunded for any overpayment after the 120 eligible payments have been made.
Discussion of PSLF Denials
Denial isn’t necessarily the final word in a borrower’s pursuit of PSLF. I suspect a large number of PSLF denials represent a “not yet” scenario. This would happen if a borrower hadn’t made all of the 120 eligible payments yet. That borrower could qualify for student loan forgiveness very soon depending on how many payments short they were.
79% of applications were denied due to not meeting program requirements.
Some of these denials really are the heartbreaking type of denial. Some denials represent borrowers who didn’t have eligible student loans. Most often in this scenario the borrower had an older FFEL loan that isn’t eligible for PSLF and wasn’t consolidated to the eligible Direct Consolidation Loan. Those borrowers represent true denials, they would need to consolidate their debt to a Direct Consolidation Loan and make 120 payments all over again… assuming there’s anything left to be forgiven after 20 years of payments.
29% of applications were denied due to missing information.
Denials due to missing information could potentially be remedied very simply. It depends on what type of information is missing. It could be employment certification information. In this situation borrowers may be able to provide the new information fairly quickly and still move on to forgiveness.
Analyzing Average Forgiveness
The average dollar amount of student loan debt being forgiven is pretty high at nearly $58,000 per borrower. This information suggests that the early borrowers who have had success receiving student loan forgiveness under PSLF might have unique demographics.
This group could represent a small subset of borrowers with masters or professional degrees, think pharmacists or physicians, people who have high salaries but also have significant amounts of student loan debt. The numbers suggest that PSLF may not be doing a great job capturing lower income lower debt public servants such as teachers. These are speculations, and my take on the data provided. Unfortunately demographic information about profession isn’t available in the data series.
How PSLF Stacks Up To Other Federal Loan Forgiveness Programs
Teacher Loan Forgiveness offers student loan forgiveness of up to $17,500 for qualifying teachers in qualifying low-income schools.
In 2009, the first documented year of forgiveness, Teacher Loan Forgiveness provided forgiveness for 14,550 borrowers. In FY 2017 Teacher Loan Forgiveness provided forgiveness for 42,297 borrowers.
Unfortunately the Teacher Loan Forgiveness Report doesn’t provide data about the total number of applicants, so I’m unable to make any comparison about approval percentages.
The Borrower Defense to Repayment program offers a discharge of student loans for borrowers if a college or university misled them, or engaged in other misconduct in violation of certain state laws. In 2016 several for-profit colleges closed and the program became more widely utilized.
As of September 2018 47,942 (24%) borrower claims were approved under the Borrower Defense to Repayment program. Of those approvals just over 15,000 (31.3%) had received partial discharge.
The Problems With PSLF
Poor communication and expectation management.
When PSLF was first announced in October of 2007, it promised loan forgiveness for public servants after 10 years of payments. In reality it’s quite a bit more nuanced than that. Borrowers must have the right type of student loans (Direct Loans), be on the right repayment plan (an income-driven plan), be employed full-time for an eligible employer (non-profit, goverment, tribal), and make 120 eligible payments.
The Employer Certification Form was the first opportunity a borrower had to complete some type of form that would help them ensure eligible employment and track their eligible payment progress. That form wasn’t released until 2012, five years after the announcement of PSLF.
It seems the nuanced requirements of PSLF have been poorly communicated and many borrowers have been unaware of nuances that have compromised their PSLF eligiblity.
Too many rules.
One of the most devastating rules has been the eligibility of only Direct Loans for PSLF. Many borrowers have an older type of student loan called FFEL loans. These loans aren’t eligible for PSLF, unless they’re consolidated to a Direct Consolidation Loan. Ineligible loan types can simply be consolidated to make them eligible, but it’s another piece of information a borrower must know and follow through on.
Important Note: consolidating eligible Direct Loans you’ve already made payments on will restart the 120 payment clock. If you’ve got Direct Loans and have already made eligible payments, don’t consolidate or you have to start over.
The intricacy of being able to consolidate student loan debt to become eligible for PSLF while consolidation could set another borrower back is unnecessarily complex. I think all types of federal student loans (except Perkins, because they have favorable cancellation terms) should be eligible for PSLF. Consolidation is a step that trips up borrowers and adds extra paperwork and processing for the Department of Education and servicers, it should be eliminated.
What do you think? Are you freaking out about the poor loan forgiveness rate for PSLF? Let me know in the comments below or on the Repayable Facebook page.
Sources
Public Service Loan Forgiveness Report
Teacher Loan Forgiveness Report
Repayable Student Loan Forgiveness Resources
5 Steps to Public Service Loan Forgiveness
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