Just days before the October 31 expiration of a temporary waiver to the Public Service Loan Forgiveness (PSLF) program, the Education Department (ED) last week announced plans to permanently improve the program.
The waiver, which launched last year, amended the long-troubled program to simplify its rules and make it easier for full-time public service and nonprofit workers to fulfill the requirement that they must make 120 qualifying student loan payments before their remaining federal student debt is forgiven.
More than 200,000 borrowers qualified for forgiveness thanks to the waiver, and ED’s initiative to permanently improve the program will benefit millions more — and in doing so, set PSLF for long-term impact and relevance.
Here’s what public service and nonprofit HR leaders need to know now that the PSLF waiver has expired and permanent improvements are in the works:
Permanent changes are coming — but not quite yet
Permanent changes will be implemented in July 2023, when previously planned improvements are also made official.
Here’s what’s slated to permanently change:
- Borrowers will be able to receive PSLF credit for late, installment, and lump sum payments
- Borrowers will be able to receive PSLF credit for months spent in forbearance or deferment due to cancer treatment, military service, economic hardship, service in the Peace Corps, National Guard, and Americorps, and any administrative or mandatory administrative forbearance
- Borrowers will be able to receive PSLF credit for time spent in deferment or forbearance for non-approved reasons, if they make payments equivalent to what they would have owed at the time. This includes credit for periods of deferment and forbearance during which the borrower’s required payment would have been $0 due to low income
- Standardization of the definition of full-time employment to 30 hours per week
- A new requirement that colleges and universities must credit adjunct and contingent faculty with at least 3.35 hours of qualifying employment time for every credit hour taught
- A workaround that will make contractors eligible for PSLF if they are providing services to a qualifying employer that cannot be provided by an employee of the organization due to certain states’ laws. This includes California and Texas, where doctors at nonprofit hospitals are typically classified as contractors
- When borrowers consolidate Direct Loans in order to qualify for PSLF, borrowers will receive PSLF credit for a weighted average of existing qualifying payments. Under previous PSLF rules, borrowers lost all PSLF credit upon consolidation
However, two provisions of the PSLF waiver will not become permanent:
- Borrowers will no longer receive credit for the same period of service for both Teacher Loan Forgiveness and PSLF
- Borrowers will no longer be able to apply for or receive PSLF forgiveness if they are not still employed by a qualifying employer
Another one-time adjustment is coming soon
ED is planning to execute a one-time adjustment that will benefit both borrowers pursuing PSLF and borrowers enrolled in Income-Driven Repayment (IDR) plans, which are available to most borrowers and forgive remaining federal student debt after 20-25 years of repayment.
This adjustment will take place in July and will award retroactive PSLF or IDR credit for:
- Any month in which a borrower was in a repayment status, regardless of whether payments were partial or late, the borrower’s repayment plan, or the loan type
- Any month prior to consolidation in which non-Direct loans were in an eligible repayment, deferment, or forbearance status
- Periods of at least 12 consecutive months or 36 cumulative months in forbearance
- Any month spent in deferment (except for in-school deferment) before 2013
Borrowers pursuing PSLF must consolidate any non-Direct federal loans by May 1, 2023, in order to receive this one-time credit. Both Direct and FFEL loans are eligible for forgiveness through IDR plans, but borrowers must consolidate into a Direct Loan in order to qualify for the adjustments.
Widespread forgiveness will only go so far
Much attention has been given to the one-time student debt relief plan announced by President Biden in August, but this initiative will only go so far — even with as much as $10,000 to $20,000 being forgiven for many borrowers.
Why? The average student loan debt balance among all borrowers is $37,693 — much more than what will be forgiven through Biden’s initiative. And many PSLF-eligible workers owe even higher balances: teachers owe $58,700 on average, while the median student debt load for nurses is upwards of $40,000.
PSLF will still be a critically important resource for public service and nonprofit workers after this widespread, one-time forgiveness is administered — and PSLF-qualifying employers should continue optimizing their benefits programs accordingly.
Ease of use is key to impact
The most important thing for HR leaders to know about the PSLF waiver is why it was implemented in the first place.
Between the time PSLF launched in 2007 and the waiver took place in 2021, only 2.1% of all-time applicants had ever been approved, and only 6.7% of eligible borrowers had ever applied. The most common cause for these low results: mistakes on borrowers’ applications, which experts agree were the result of confusing program requirements and a frustrating application process.
That’s why we built a tool into our platform that streamlines the PSLF application process, for both employees and admins. Since its launch last summer, we’ve found that the majority of users who have applied for PSLF via the Candidly platform have been first-time applicants, and the average time it takes an admin to approve an application is just 79 seconds — proving that digitization and attention to user experience are key to maximizing the PSLF program’s reach and impact.
And it’s not just borrowers who can put our PSLF tool to good use. By implementing a digital solution that makes it easier — and even enjoyable — to administer a student loan benefit designed for the public sector’s unique needs, employers can save valuable administrative resources, retain employees on the road to PSLF, and even attract new talent with the promise of debt forgiveness.