New Rules Speed Loan Forgiveness for Public Servants

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550,000

The Balance

That’s how many public servants pursuing student loan forgiveness under a federal program are now closer to their goal because of a sweeping set of changes announced Wednesday.

The temporary overhaul announced by the Department of Education makes it easier to qualify for the Public Service Loan Forgiveness (PSLF) program, which allows people to have the outstanding balance on their federal loans forgiven if they work full-time for a tax-exempt nonprofit group or a federal, state, or local government while steadily paying on their student loans for 10 years (for a total of 120 monthly payments).

The original PSLF program came with many restrictions, including that past payments only counted if the loans were through the federal direct loan program (rather than through older, discontinued loan programs such as Perkins and the Federal Family Education Loan Program). But borrowers can now have payments to loans from those older programs count towards forgiveness if they consolidate their loans into a direct loan, the Education Department said. Under the previous rules, borrowers who consolidated their old loans into a direct loan could only count payments that were made after the consolidation. That restriction is now out the window, though, and more than 550,000 borrowers who consolidated will now automatically have an additional average of 23 monthly payments, which previously didn’t qualify, added to their total.

Overall, the PSLF program has been accompanied by so much fine print and red tape that just over 16,000 people have actually had their loans forgiven since it started in 2007, out of 1.3 million people who have pursued it. Another rule, for example, said the monthly payments only counted towards the 120-payment goal if they were complete and on time—requirements that punished borrowers heavily for tiny mistakes. 

“In some instances, borrowers missed out on credit toward PSLF because their payments were off by a penny or two or late by only a few days,” the Education Department said in a statement. 

Under the temporary rule change, which lasts until October 2022, borrowers’ past payments will count towards forgiveness regardless of whether they were on time or complete. 

The Education Department is also waiving the rule that said past payments only counted towards forgiveness if they were made via an income-driven repayment plan, as opposed to standard payment plans.

For those already in the direct loan program who have had their employer certified as qualifying, the Education Department will automatically count previously ineligible payments toward the 120-month goal. Those who haven’t yet applied for PSLF can do so now, and get their previously-ineligible older payments counted towards forgiveness. Borrowers can use the Department of Education’s PSLF Help Tool to see if they qualify.

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.