PSLF: What is the issue?

The PSLF Program was established by Congress in 2007. Under this program, if the individual with the loan has worked a minimum of 10 years of full-time work (defined as a minimum of 30 hours per week) for a designated 501c3 nonprofit organization or government entity (state, local, federal, or tribal), AND if student loan payments are made for 120 months (10 years), then all remaining student loan debt is forgiven.

Why do nonprofits care?

This program offers an important benefit for recruiting staff into the nonprofit sector. It is a means for nonprofits to compete, or at least offset, the higher salaries offered in the private sector. Of course, it only works as an incentive if it is made known, both to nonprofits and to potential candidates to work in the nonprofit sector.

What is the current situation with the PSLF Program?

Despite the June 30th US Supreme Court decision to strike down the Biden Administration’s plan to cancel up to $20,000 of student loan debt per borrower, the Public Service Loan Forgiveness (PSLF) program remains a powerful incentive for people to work in the charitable sector. Several improvements initiated earlier this month make the program more attractive to individuals interested in working in the nonprofit sector. 

Specifically, on July 14, under the direction of President Biden, the U.S. Department of Education began notifying more than 800,000 borrowers under the PSLF that they have a total of $39 billion in federal student loans that will be automatically discharged — in effect, forgiven — in the coming weeks. The forthcoming discharges are the result of modifications implemented by the administration to ensure that all borrowers have an accurate count of the number of monthly payments that qualify toward forgiveness under “Income-Driven Repayment” plans or IDRs. IDRs base required monthly loan payments not on a fixed dollar amount, but on a percentage of current income. These efforts represent an effort by the administration to address historical failures in administering the student loan program, in which qualifying payments made under an IDR should have moved the borrower closer to forgiveness, but were not adequately accounted for.

As of October, 2023 the Covid-19 payment pause ended. Thus, student loan payments have been restarted. There is currently $1.8 trillion of outstanding student loan debt owed by 44 million individuals — an enormous amount of money owed by a very large portion of the American population of 332 million.

Although launched back in 2007, the program saw very little debt being forgiven during its first 13 years, with only 7,000 individuals having had their loans forgiven. The difficulty with the program has been attributed to a number of factors, including failure of applicants to properly verify their employment at either a nonprofit or governmental entity, having not made all of the required 120 monthly student loan payments on time, and confusion about eligibility.

The situation dramatically changed when the Biden Administration took office in January 2021 and made the program a priority. The program streamlined the application process and may include the Federal Perkins Loan Program and the Federal Family Education Loan to become eligible for forgiveness if consolidated.

Since January 2021, 662,000 borrowers have had their loans forgiven (increasing the number more than 20 times what had been forgiven in the previous 13 years).  This represents in aggregate approximately $8 billion dollars of loans forgiven. 

Additionally, since January 2021, 1.1 million loans have been reclassified bringing these 1.1 million borrowers closer to forgiveness. These numbers will continue to grow as the Department of Education continues to process paperwork and with the expected increased volume of borrowers seeking reclassification of their loans to “forgiveness eligible” as the October 31, 2022 deadline for submitting reclassification approaches.

Are there threats on the horizon to the PSLF Program?

Yes, from time-to-time there have been efforts by various Members of Congress to shut down the program. This is most likely through the congressional appropriations process, where funds for the program could be cut off or “zeroed out.” However, given the strong support of the Biden Administration, as well as the ability of the Administration to veto any effort to reduce student loan forgiveness funds (requiring a 2/3 vote of both houses of Congress to override a veto), the program seems to be secure until at least the end of the current Administration’s term in January 2025.

What can we do now?

In terms of Congressional advocacy, TNPA will remain vigilant to oppose any efforts, which would undermine this important program.