LegiStorm

Summary:

Student loan forgiveness and loan repayment programs provide borrowers a means of having all or part of their student loan debt forgiven or repaid in exchange for work or service in specific fields or professions or following a prolonged period during which their student loan debt burden is high relative to their income. In both loan forgiveness and loan repayment programs, borrowers typically qualify for benefits by working or serving in certain capacities for a specified period of time or by satisfying other program requirements over an extended term. Upon qualifying for benefits, some or all of a borrower's student loan debt is forgiven or paid on his or her behalf. One of the most important distinctions among these types of programs is whether the availability of benefits is incorporated into the loan terms and conditions and thus considered an entitlement to qualified borrowers, or whether benefits are made available to qualified borrowers at the discretion of the entity administering the program and subject to the availability of funds. For the purposes of this report, the former types of programs are referred to as loan forgiveness while the latter are referred to as loan repayment. Loan forgiveness and loan repayment programs typically are intended to support one or more of the following goals: Provide a financial incentive to encourage individuals to enter public service. Provide a financial incentive to encourage individuals to enter a particular profession, occupation, or occupational specialty. Provide a financial incentive to encourage individuals to remain employed in a high-need profession or occupation—often in certain locations or at certain facilities. Provide debt relief to borrowers who, after repaying their student loans as a proportion of their income for an extended period of time, have not completely repaid their entire student loan debt. The number and availability of loan forgiveness and loan repayment programs have expanded considerably since the establishment of the first major federal loan forgiveness program by the National Defense Education Act of 1958. Currently, over 50 loan forgiveness and loan repayment programs are authorized, and at least 30 of which were operational as of October 1, 2015. While existing loan forgiveness and loan repayment programs may support similar broader goals, there is great variety across programs in their design and scope. For instance, some programs are widely available to all borrowers who meet program eligibility criteria. However, many programs are narrowly focused on supporting specific public service or workforce needs and are available only to individuals serving in certain occupations or working in certain geographic regions, or individuals employed by certain federal agencies. In some programs, the availability of benefits is incorporated into the terms and conditions of borrowers' loans and is more certain, whereas in other programs, the availability of benefits is subject to discretionary funding and award criteria. Programs are also distinguished by types of loans that qualify for forgiveness or repayment, qualifying periods of service, the amount of debt that may be discharged, and the tax treatment of discharged indebtedness. Congress may explore whether loan forgiveness and loan repayment programs are effectively achieving policy objectives. Several issues might be examined. For instance, should multiple loan forgiveness and loan repayment programs continue to exist for providing debt relief to borrowers who engage in similar types of activities? Does the structure of some programs lead to a financial windfall for borrowers who engage in the same type of activity they might otherwise have in the absence of loan forgiveness and loan repayment benefits? Are programs appropriately targeted? Is sufficient information available to assess whether existing programs are effectively achieving their intended purposes?