According to a recently-released batch of data on the program. A shocking statistic: 99% of people who applied for public service loan forgiveness have been rejected.
What you need to know about Public Service Loan Forgiveness
This year very few borrowers have had their applications approved for relief under the Public Service Loan Forgiveness (PSLF) program, there are a number of reasons why that isn’t nearly as shocking as it first appears.
PSLF allows borrowers with federal direct student loans who make ten years’ worth of qualifying monthly payments while working in an eligible government or nonprofit job to receive a complete discharge of their remaining balances.
Borrowers could start making qualifying payments in October 2007, so the earliest date one could apply for relief was October 2017. Borrowers must meet all these conditions to have their PSLF applications approved.
It sounds simple enough. So why have so many borrowers had their forgiveness applications rejected? There are several main reasons why—and they’re all perfectly legitimate.
1. Ineligible loans.
Only federal direct student loans are eligible for PSLF. Currently, almost all new loans are direct, but that wasn’t always the case. In 2007, when PSLF took effect, only 21% of outstanding federal student loans consisted of direct loans; most of the remainder fell under a now-defunct guaranteed loan program that was not eligible for PSLF.
2. Insufficient payments.
Second, borrowers must make 120 qualifying payments in order to have their loans discharged. That equates to ten years of payments if the payments are made continuously. To qualify, the payment must be made under the right repayment plan while the borrower is employed in a “public service” job.
3. Wrong repayment plan.
In addition, the borrower must select the right repayment plan in order to qualify for PSLF. As this is a confusing part of the program, Congress passed a temporary measure to allow otherwise-eligible PSLF borrowers who enrolled in the wrong plan the opportunity to receive forgiveness anyway.
However, the Education Department only recently started accepting forgiveness applications under this temporary program, so acceptances under that program are not included in the statistics cited in media reports. It is likely, though, that many borrowers who saw their PSLF applications initially rejected will see them approved under the temporary measure.
4. Paperwork errors.
Around 8,000 of the rejected applications, representing 28% of the total, were denied “due to missing or incomplete information” on their application forms. It is difficult to say how many of these incomplete applications would have resulted in forgiveness, but the Department has invited borrowers denied for this reason to resubmit a complete application.
PSLF acceptances will probably rise as more and more borrowers do so. As those acceptances rise, so too will program costs.
The Congressional Budget Office estimates that the annual fiscal cost of PSLF for new borrowers alone will increase by a factor of eleven in less than a decade’s time—and those cost estimates have gone nowhere but up. Many factors explain why PSLF discharges in the program’s first year are low. But those factors also suggest that many more successful forgiveness applications are well on their way.
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