Federal Student Aid just announced big changes to Public Service Loan Forgiveness.
In the past when a borrower made a lump sum payment or otherwise pre-paid their loan, those payments would only count as one qualifying payment toward PSLF. In August, FSA’ changed their policy and as a result prepayments and lump sum payments will count for as qualifying payments if a borrower has a valid employment certification on file and other usual eligibility conditions are being met. This news is HUGE for those working in public service and seeking PSLF.
FSA also announced they are launching a redesigned PSLF Help Tool for borrowers on the studentaid.gov website. The tool will help borrowers determine their eligibility and even apply for PSLF using a single form for PSLF and Temporary Expanded PSLF (TEPSLF). Following the StudentAid.gov update, borrowers will only need to submit this one form to certify their employment or to be considered for forgiveness under PSLF or TEPSLF.
Last month Federal Student Aid released a report on the status of the Public Service Loan Forgiveness program drawing criticism for abysmal approval rates. Under the Public Service Loan Forgiveness Program (PSLF), which was established by the Bush administration in 2007, borrowers who make 120 qualifying monthly payments, and who have done so under a qualifying repayment plan and who have worked full-time for a qualifying employer may have their outstanding Direct Loan balance forgiven. Roughly 28,000 borrowers applied since October 2017 when the first cohort of borrowers could have been eligible based on the potential they made 120 qualifying payments. The problem is only 96 of those borrowers have been approved, mostly for not making enough payments under a qualified plan.
70% of the applications processed by FSA have been outright denied due to borrowers not meeting the program requirements such as having eligible loans, having made 120 qualifying payments or qualifying employment. Another 28% of the applications were denied due to missing or incomplete information on the application. While it is possible that some of these borrowers may qualify one day, the question is when and how many?
The United States Government Accountability Office (GAO) released a report finding that the Department of Education did not provide key information to PSLF servicers and borrowers, particularly which employers, and loan payments qualify. Their recommendations to Federal Student Aid include some common-sense fixes.
The GAO recommended that FSA should develop comprehensive guidance for PSLF servicing. Additionally, they recommend that they develop an authoritative list of qualifying employers and make that list available to borrowers. The GAO also recommended that FSA should standardize the information from other loan servicers to ensure accurate payment information for borrowers is available, and to provide that information to borrowers along with other information about their loans so that their payments qualify for PSLF. You can read the full GAO report here.