The Problem of Public Service Loan Forgiveness

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As U.S. college student debt climbed at an alarming pace in the early to mid-2000s, more advocates began pushing for an overhaul of the student aid program to make higher education more accessible. 

In 2007, lawmakers joined the cause, and Congress and then-President George W. Bush passed the College Cost Reduction and Access Act. The act increased funding to Pell Grants, cut interest rates for student loans, and implemented loan forgiveness for public service professionals. The bill, noted the late Senator Edward Kennedy (D-MA), would “help millions of students achieve the American dream.”

One of the bill’s most ambitious provisions was the Public Service Loan Forgiveness (PSLF) program, which eliminates federal student loan debt for qualifying nonprofit and government employees–teachers, public defenders, nurses–after ten years of consistent loan payments. In theory, qualifying for loan forgiveness under PSLF should be fairly straightforward. Graduates must have taken out loans under the Direct Loan program, work full-time for certain government or not-for-profit organizations, be enrolled in a qualifying repayment plan, and have made 120 qualifying payments. If loan borrowers meet these criteria, their remaining student loans are forgiven: a gesture of thanks for graduates’ public service and an incentive for them to stay in lower-paying jobs.

Though the program’s intent is important, loan forgiveness for qualifying individuals has proven nearly impossible. According to the most recent report released by the Department of Education, only 1% of the over 86,000 applications have been approved–that’s only 864 people since the first applicants became eligible for loan forgiveness in 2017. 87% of applications have been rejected outright, and 12% remain pending. The majority of applicants were rejected because of technicalities, like choosing the wrong repayment plans.

If the Department of Education finds that an applicant has not made 120 qualifying payments on a qualified repayment plan, he or she is denied. This makes sense, but in many such cases, individuals were given incorrect or no information when they asked loan servicers whether or not they qualified. In other cases, applicants discovered that they had enrolled in the wrong repayment plan years after applying, which disqualified them from PSLF. For some graduates, this realization and disqualification came up to ten years after they enrolled in a repayment plan, and after ten years of diligent, on-time loan repayment.

Loan types have been an issue, too. 16% of applicants were rejected because the applicant did not have eligible loans. Many applicants erroneously listed Federal Family and Education loans (FEEL) or Perkins loans, which do not qualify under PSLF. If an applicant has unqualified loans, he or she can consolidate it into a direct loan. However, this process “resets the clock” for borrowers, and they must start the 120 qualifying payments from the beginning.

Loan servicers have come under scrutiny as more and more applicants learn that they do not qualify for PSLF. According to an investigation by NPR, servicers “appeared undertrained, uninformed and prone to a litany of paperwork mistakes.” The reporter recounts the story of a teacher for a public university in California, who after reaching out to a loan servicer, was reassured that she would qualify under PSLF. She worked and paid her loans for six years before she was unexpectedly informed that she would have to consolidate her loans in order to receive loan forgiveness. This meant her ten years of loan payments would reset to zero. “I’ve spent six years thinking one thing, and now it’s another,” she explained. A number of applicants have been led astray by uninformed servicers, and do not learn about these mistakes until borrowers believe they are on the way to loan forgiveness.

The problems with PSLF came to the fore in 2018 when Seth Frotman, the Consumer Financial Protection Bureau’s Student Loan Ombudsman, resigned. In 2017, Frotman released the results of an investigation into the thousands of complaints from PSLF applicants, but his recommendations for how to raise standards for loan servicers and solutions for borrowers who were given incorrect information failed to result in any changes. His resignation letter, addressed to then-Director of the Consumer Financial Protection Bureau, Mick Mulvaney, included a fiery rebuke of the administration’s role in damaging student loan forgiveness. In the letter, Frotman notes that under Mulvaney’s leadership, the CFPB “sacrifices the financial futures of millions of Americans in communities across the country.”

In 2018, Congress allocated $700 million to the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) program, an interim fix for PSLF. This funding was intended to help borrowers that enrolled in the wrong plans to become eligible, but accepted borrowers have only received $30 million in total.

Congressional leaders have also voiced frustration with the program, and some are demanding action. In a recent op-ed about PSLF, Senator Tim Kaine (D-VA) and President of the American Federation of Teachers, Randi Weingarten, argued that “public service transcends politics. It’s one of the greatest reflections of American values, and Public Service Loan Forgiveness is a promise worth our continued investment so the great tradition of service in this country can move forward without enforcing a lifetime sentence of debt.” Sen. Kaine also joined Sen. Kirsten GIllibrand (D-NY) (a candidate in the Democratic presidential primary) and 18 other senators in introducing legislation to close the program’s loopholes and simplify the application process.

Sen. Gillibrand introduced the What You Can Do For Your Country Act in the Senate, and Rep. John Sarbanes (D-MD-3) introduced an identical bill in the House. The bill would allow borrowers of all federal loans, enrolled in any federal repayment plan, to qualify for PSLF. It would also require the Department of Education to provide clear instructions and guidance for applicants on whether or not they qualify for the program and how they can dispute a rejection. Another presidential contender, Sen. Elizabeth Warren (D-MA), co-sponsored the legislation: “The Federal Government promised dedicated public servants they would not be saddled by decades of crushing student debt, and it is past time we fulfill that promise,” she wrote in a statement.

The White House has opted for another route. In his Fiscal Year 2020 budget, released in March, President Trump proposed cutting Department of Education funding by 12%. The budget would eliminate PSLF and replace it with a single income-driven repayment (IDR) plan that would offer borrowers the option of making monthly payments based on income and family size. According to the proposal, the elimination of PSLF would decrease the deficit by over $50 billion by 2029, but many advocates are pushing back. Mark Kantrowitz, publisher of the independent research group Savings for College, responded to the proposed cut by saying: “eliminating public service loan forgiveness will hurt members of the U.S. Armed Forces, police, fire, EMTs and other first responders. It will also reduce the number of people pursuing careers in public interest law, such as public defenders and prosecutors.”

Congressional Republicans have been less clear-cut about their stances on the program. While no Republicans signed onto Senator Gillibrand’s legislation, the House GOP is unlikely to introduce a proposal for HEA reauthorization without provisions for PSLF. Some Republicans joined the Trump administration’s call to eliminate the program, but that has not gained mainstream traction.

As more and more public servants reach a decade of service, the problem of PSLF will only grow. Regardless of the outcome, congressional leaders–guided by constituents, advocacy organizations, and rigorous research–must work together to find a solution for the nation’s public servants.

To learn more about the PSLF program,  download National Journal’s PSLF primer.