LegiStorm

Summary:

The Public Service Loan Forgiveness (PSLF) program provides Direct Loan borrowers who, on or after October 1, 2007, are employed full-time in certain public service jobs for 10 years while making 120 separate qualifying monthly payments on their Direct Loans with the opportunity to have any remaining balance of principal and interest on their loans forgiven. The program was enacted under the College Cost Reduction and Access Act of 2007 (P.L. 110-84) to encourage individuals to enter into and remain employed in public service and to alleviate the potential financial burdens associated with federal student loans of borrowers in public service occupations who were presumed generally to earn less than their counterparts in other occupations. With the opportunity to apply for program benefits first being made available on October 1, 2017, based on service completed and payments made prior to that date, many issues that span several aspects of the program have been raised and have garnered congressional interest. This report addresses numerous issues, which are highlighted below. Program implementation issues that have surfaced relate to how the PSLF program’s statutory requirements have been operationalized, difficulties experienced by borrowers in participating in the program, and difficulties in administering the program. Some of these issues include:  Operationally defining what constitutes a “public service job.” This includes whether the definition in use is sufficiently targeted to meet congressional intent for the program and whether it has created inequities among types of borrowers. There have also been administrative difficulties associated with identifying and certifying qualifying employment.  Determining what constitutes a “qualifying payment.” Multiple criteria related to on-time payments, time periods over which payments must be made, and specific payment amounts must be met for a payment to be considered qualifying, which may cause confusion among borrowers and create administrative difficulties.  Difficulties borrowers may face when determining which repayment plan to enroll in to maximize PSLF benefits. Payments made according to an income-driven repayment (IDR) plan may decrease the monthly dollar amount of payments made, which may ultimately lead to greater amounts of PSLF forgiveness benefits. Payments made under other plans may also qualify for PSLF but may not be as valuable to borrowers in terms of eventual PSLF forgiveness benefits.  The effects of loan consolidation on a borrower’s progress toward receiving PSLF benefits. Of particular importance, PSLF qualifying payments made prior to consolidation do not count toward forgiveness of the resulting Direct Consolidation Loan.  The complexities and challenges that administering the program may present for the Department of Education, loan servicers, and borrowers. These include issues of communication among the parties regarding program requirements and processes, lack of coordination among loan servicers, loans servicers making errors or not completing tasks associated with the program in a timely manner, and the lack of automation of some administrative functions. Issues pertaining to PSLF program interactions with other programs and benefits relate to whether borrowers understand the interactions well enough to make rational choices and maximize available benefits and, from the federal government’s perspective, questions have arisen regarding whether the desired targeting of benefits is being achieved and about the potential costs associated with such interactions. Some of these issues include:  There is no limit to the amount of loan forgiveness benefits an individual may realize under the PSLF program. While it is possible that many borrowers may receive limited benefits, some Direct Loan borrowers may realize large forgiveness benefits under the program. This outcome may be more likely to occur for borrowers of Direct PLUS Loans for graduate and professional students, which have no aggregate borrowing limits, and which were newly authorized to be made just prior to the enactment of PSLF. Also, the variety of IDR plans has expanded greatly since the PSLF program’s inception, with several of the new IDR plans providing for lower monthly payments than under the Income-Based Repayment plan—the primary IDR plan available when the PSLF program was enacted. This expansion may allow borrowers to lower monthly payments and potentially realize larger forgiveness benefits under the program. The current borrowing limits and variety of IDR plans, coupled with PSLF program benefits, have raised questions about whether certain types of students are not incentivized to limit borrowing and whether they may be less sensitive to the price of postsecondary education.  Borrowers may receive benefits under a number of federal student loan repayment programs. Borrowers may also be able to avail themselves of certain income tax provisions to maximize PSLF program benefits. For borrowers, understanding whether the same service that qualifies for PSLF may also qualify for other loan repayment benefits is important, as is their understanding of how other benefits and tax provisions may interact with PSLF. From the perspective of the federal government, a key consideration may relate to what constitutes a “double benefit” for service performed by borrowers and the extent to which overlapping benefits might be provided. Broad program-related issues relate to (1) how the program fits into the overall suite of federal student aid benefits and (2) the difficulty of estimating the potential participation in and costs of the program. 1. The enactment of the PSLF program is reflective of a broadening of the federal approach to student aid, providing more widely available assistance to individuals after a postsecondary education’s costs have been incurred. This approach may place greater emphasis on providing aid on the basis of economic circumstances after enrollment, rather than at the time of enrollment. It also makes some aid available on a targeted basis—providing relief to individuals who pursue certain types of service or occupations, rather than providing aid more broadly to individuals who enroll in postsecondary education. 2. The granting of loan forgiveness benefits results in costs to the federal government, and there has been some speculation that the cost of PSLF could be much higher than anticipated. Limited information is available on the actual and future costs to the government of the PSLF program. It has just recently become possible to claim program benefits; thus, little is known about what the costs associated with the program will be based on the experiences of actual cohorts of borrowers. In addition, estimating potential costs may prove difficult as borrowers are not required to submit information on their intent to participate in the program until they seek forgiveness benefits after 10 years of service and qualifying payments.