Education Law

Changes are proposed to Public Service Loan Forgiveness program as part of student-loan debt relief

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President Joe Biden announced Wednesday that his administration will cancel up to $10,000 in federal student loan debt and up to $20,000 in student debt for Pell Grant recipients.

The administration is also proposing changes to the Public Service Loan Forgiveness program to create an easier path to loan forgiveness, according to the White House fact sheet.

“Because of complex eligibility restrictions, historic implementation failures and poor counseling given to borrowers, many borrowers have not received the credit they deserve for their public service,” the fact sheet said.

Biden also said he would extend a pause on loan repayment, interest and collections through the end of the year. Changes to income-based repayment plans are also planned.

A press release is here; Bloomberg Law, the Washington Post (here and here), the New York Times, CNN and Forbes have coverage.

Details on the changes include:

    • Borrowers are eligible for loan forgiveness of $20,000 on college Pell Grants and $10,000 for other student debt if their loans are held by the U.S. Department of Education and their income in either 2020 or 2021 was less than $125,000 per year as an individual or less than $250,000 per year per household.

    Applications for the debt cancellation will be available by the end of the year. Some people may automatically get debt cancellation if the DOE has their income data.

    • The DOE is proposing a rule to reduce future monthly payments on undergraduate loans to 5% of discretionary income, down from the current 10%. Borrowers with undergraduate and graduate loans would pay a weighted average rate, according to the department’s press release. Income-based repayment plans forgive loan balances after 20 or 25 years of repayment, according to Forbes.

    The proposed rule would fully cover unpaid monthly interest, so that borrowers’ loan balances would not grow, as long as they are making their required monthly payments. The rule would also raise the amount of income that is considered nondiscretionary income, which is protected from repayment. And borrowers with original loan balances of $12,000 or less would have loan balances forgiven after only 10 years of payments.

    • The administration is proposing long-term changes to the PSLF program, which offers loan forgiveness for those who make monthly loan payments for 10 years while working full time in qualifying public service jobs. The proposal would allow more payments to qualify for the program, including partial, lump sum and late payments, and it would allow certain kinds of deferments and forbearances to count toward the program, including those for Peace Corps and AmeriCorps service, National Guard duty and military service.

Full-time employees of the ABA are among those who are eligible to participate in the loan forgiveness program.

The proposed changes would build on temporary changes announced last year that added additional loan plans to the public service loan program. Borrowers have to apply to consolidate their loans into a direct consolidation loan by Oct. 31 to qualify under the temporary changes. The department has other details of the October changes in this press release.

More information on the PSLF program is available here.

The new changes announced Wednesday are intended to fix problems with income-driven repayment plans and the PSLF program, Forbes reports. According to Forbes, millions of borrowers were improperly steered into forbearance, rather than income-based repayment plans.

This harmed borrowers because periods of forbearance didn’t count toward the repayment term. Now, certain deferments and forbearance will count under a one-time adjustment for the income-based repayment and public service loan programs.

Another new change counts any months in which borrowers made payments toward income-driven repayment plans, regardless of repayment plan, Forbes reports. Also, payments made before loan consolidation will count toward the income-driven and public service loan programs.

“What a surreal, historic moment,” tweeted Adam S. Minsky, the author of the Forbes article. “So many people worked very hard to make this happen.”

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