Biden administration to reveal major student debt forgiveness overhaul this week
The Department of Education is expected to announce a significant overhaul of its Public Service Loan Forgiveness (PSLF) program, which could cancel loans for tens of thousands of borrowers and reduce the number of required payments for even more.
"To build back better we must fix the systems that have been broken for too long," U.S. Secretary of Education Miguel Cardona said in a tweet. "I’m excited that next week we’ll be announcing a major overhaul of the Public Service Loan Program to finally deliver the relief our public servants were promised."
The PSLF program was designed in 2007 to help those with a qualifying employer – like teachers, police officers, military service members and those working for another government organization or other public service jobs. It is also available to those who are employed by the U.S. government or by a not-for-profit organization.
Borrowers must work full time and have Direct Loans or consolidate their federal student loans into a Direct Loan. Other eligibility requirements include making their payments under an income-driven repayment plan and completing 120 on-time qualifying payments. However, the program has also been a source of confusion for many borrowers and student loan servicers. The Education Department is now looking to make changes in two phases: long-term changes through rulemaking and temporary expanded PSLF through executive action from the department, according to a report from NPR.
These forgiveness programs are only available to borrowers of federal student loans. If student loan borrowers are interested in lowering their private student loan payments, they should consider refinancing. By lowering your interest rate, you can reduce your monthly payments. Visit Credible to find your personalized interest rate and see how much you can save.
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Changing what payments qualify toward PSLF
In 2007, many federal loans were created through Federal Family Education Loans (FFEL), issued by banks but still backed by the federal government. Unlike federal Direct Loans, these loans do not qualify for student debt forgiveness.
The program was later shut down in 2010, and all new loans are made under the Direct Loan program. For student loan payments to count toward the 120 on-time payments qualification, borrowers need to consolidate their loans under the Direct Loan program.
Under the new changes, any PSLF applicants working in public service would qualify for forgiveness, even if the payments were made toward FFEL loans, the NPR report states. Borrowers who completed payments that did not count toward their payment total will see credits to their account for previous charges.. To qualify, borrowers must apply for the PSLF program before Oct. 31, 2022.
If you don’t have an eligible loan for PSLF under the new changes, and have private student loans, refinancing can help you lower your monthly payments. Visit Credible to compare multiple student lenders at once and choose the one that works best for you.
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The effects of PSLF changes
The Education Department previously stated that the PSLF program created confusion and subsequently examined how its original promise could be better fulfilled.
"Over the years, PSLF has spawned much confusion and frustration," the Education Department stated in a blog. "Millions of people are employed in public service, including teachers, firefighters, law enforcement, and some nonprofit workers, yet only about 5,500 borrowers have received PSLF discharges thus far, totaling $453 million."
A source familiar with the details told NPR that 60% of borrowers who are not yet eligible for PSLF also have or previously had ineligible loans. The new changes could pay off the remaining student debt balance for many of these borrowers after more loan payments reach the 120 goals and decrease the number of charges left for many more.
If you have private student loans, they won’t qualify for student loan forgiveness, but a refinance could help lower the monthly payments by up to hundreds of dollars. Contact Credible to speak to a student loan expert and get your questions answered.
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