A New Day for the Public Service Loan Forgiveness Program
New form. New data. New servicer.
If you have student loans, you have probably looked at the Public Service Loan Forgiveness (PSLF) program. After doing your research, you probably came to one of two conclusions.
- This program rocks. I’m all in!
- This program sucks. I’m staying away!
While I’m in the first category, I completely understand those in the second. PSLF has been a quasi-disaster, but not because the program is bad. In fact, the program has forgiven over $450,000,000 in student loans since 2017.
The disaster happened because of poor planning by the Department of Education and the sole loan servicer who handles PSLF, FedLoans (a division of PHEAA).
Things have been turning around recently, but there are still some headwinds before getting to the promised land.
New Form
The new PSLF form was made publicly available in November 2020 and combined everything into a single piece of paper.
- Initial employer certification
- Payment count updates
- PSLF application
- TEPSLF application
This is great news, as it streamlines the entire process. No more filling out an Employer Certification Form to force FedLoan to verify 120 payments, then waiting for them to approve it, then submitting your actual application.
The only bug in the program is that payment count updates are being counted as “applications”, which is completely skewing the numbers (more on that below). The DOE even addresses this on the Federal Student Aid website.
Each time you submit a form, we will evaluate your eligibility for forgiveness, and provide that forgiveness to you if you are eligible.
In addition to the new form, the Department of Education rolled out a new online PSLF Help Tool, allowing you to search for qualifying employers and even submit your application electronically.
This is a much better solution than faxing in your application and praying that antiquated technology actually worked.
New Data
The DOE is congressionally mandated to report on the PSLF program every month, which it had finally been doing staring in 2019. (Better late than never, I suppose.)
However, when the new form was released, the monthly updates stopped. The old reporting template was no longer applicable and the data would have been inaccurate.
I get that, but it took 6 months, until April 2021, for them to actually give an update. Sure, there was an election, an insurrection, and a new President, but most of the DOE staffers kept their jobs during this time, right?
Anyways, the new data was published, and the media jumped all over it. They claim that PSLF has a 98% rejection rate and that it’s still a garbage program.
A closer look at the data tells a different story. I going into more detail in a previous article, but once you tease out the “applications” that are really just initial reviews and payment updates, the approval rate of PSLF is actually around 22%, and growing. Even the previous data using the previous multiple forms showed an increasing approval rate.
As if the hard data isn’t enough, the anecdotal data keeps coming, month after month. If you go the r/PSLF subreddit, you’ll see more and more frequent success stories.
- $230,000 forgiven on 7/9
- $189,000 forgiven on 7/11
- $60,000 forgiven on 7/11
- $75,000 forgiven on 7/10
- $218,000 forgiven on 7/8
- $105,000 forgiven on 7/9
- $71,000 forgiven on 7/8
- $121,000 forgiven on 7/9
- $169,000 forgiven on 6/24
Here’s a great example of just how impactful this program is. This person borrowed $130,000, which they then consolidated (I’m assuming right after graduation). Over the next 11 years and 5 employers, they paid back $50,000 while their balance grew to $199,000 over both subsidized and unsubsidized loans.
On 6/28, they received forgiveness for the unsubsidized amount, followed by subsidized forgiveness on 7/9.
Their reaction?
I’m free.
This is exactly the result I’m working towards, with my $135,000 in student loan debt.
New Servicer
The biggest news in the past month has been that PHEAA, who operates FedLoans, declined to renew their contract with the DOE and will no longer service any federal student loans.
This puts a big kink in PSLF for several reasons.
First, PHEAA stated it will “no longer handle federal loans after this year (2021). That means the DOE only has five months to find a new servicer that will not only be willing to take the entire FedLoan borrower population, but also the PSLF program and the much stronger federal oversight that comes with it.
Second, the DOE and PHEAA have to figure out how to restart student loan payments in October after the COVID-induced forbearance runs out. Several senators are already calling for the Biden administration to extend the forbearance, but that would be unlikely, as it has already been previously extended.
Third, PSLF applicants will still be submitting for forgiveness throughout this entire transition, and keeping accurate records in real-time will be a nightmare.
Now, the DOE says that everything will be fine, but I don’t believe it.
The Education Department and PHEAA are working toward a smooth transition for the 8.5 million borrowers whose loans are managed by the servicer. [Keith New, a PHEAA spokesman] anticipates the transition will extend into next year.
Richard Cordray, who heads the department’s Federal Student Aid office, said the federal agency “is committed to using all of the tools in our toolbox to make sure borrowers are supported and not negatively impacted during this transition.”
He said the student aid office and PHEAA are developing a “wind-down plan” that will “feature early and frequent communications and clear guidance on what borrowers should expect, as well as strong oversight from FSA during this transition.”
This is exactly the kind of government language that is used to assuage the masses during an outside press conference while there is a dumpster fire inside the building.
The Takeaway
I am a huge believer in the PSLF program. Yes, it fell flat on its face when the first cohort of borrowers was eligible for forgiveness in 2017, but the past 4 years have seen significant improvement.
The biggest hurdle will be the transition from FedLoan to a new servicer, but, as Elizabeth Warren stated,
Millions of loan borrowers can breathe a sigh of relief today knowing that their loans will no longer be managed by PHEAA, an organization that has robbed untold numbers of public servants of debt relief and was recently caught lying to Congress about its atrocious record of fines and penalties.
PHEAA and FedLoan were atrocious. There will be some growing pains during and immediately after the transition, but I can’t imagine the new servicer will make the same level egregious mistakes as FedLoan. (I’m really hoping I don’t eat my words on this one.)
For the moment, though, if you are gunning for PSLF…or even a regular borrower who was assigned FedLoan…keep tracking of everything!
- Bank statements showing loan payments
- Servicer statements verifying those payments
- Proof of employment by an eligible employer
- Old payment counts
Don’t try to avoid the inevitable screw-ups during the transition. Just keep submitting your paperwork as normal, and make sure you record your communication.
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This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
