What the Department of Education Has Done to Help Borrowers: Summer of 2022 Update.

When the Public Service Loan Forgiveness (PSLF) program was introduced in 2007, there was a great reason to celebrate. Total forgiveness, tax-free, on your federal student loans after making only 120 qualifying payments while working in a public service position or for a 501(c)3 nonprofit organization sounds fantastic. However, it isn’t quite that simple.

Fifteen years later, according to the Department of Education reports, only 2% of applications have been approved. The latest report shows that of those rejected, 76% had no open Direct Loans with the necessary 120 payments. 13.3% had direct loans but did not have enough qualifying payments. 10.7% have worked for a qualifying employer for 120 months, made 120 monthly payments, but somehow still have under 120 qualifying PSLF payments.

“How can I have worked for a qualifying employer, made the correct amount of payments, but still be rejected?” The bureaucratic process, confusing language, misinformation, and a lack of support from servicers leave many borrowers unsure of where they stand. Many are unaware that your loan type matters or that they must be on a specific payment plan. Many are not informed they must annually update their information and what that information even is.

With the intent to help so many but seeing so little success, it is evident that the Department of Education needed to take action. Below you will find a list of actions taken by the DoE from newest to oldest, as well as key dates to be aware of.

Important Dates:

  • August 31, 2022 – Last day of CARES Act pause on student loan payments and interest. Penalties for loans in default, such as wage garnishment and tax-offset will also resume
  • October 31, 2022 – Last day of the Temporary Limited Waiver’s relaxation of PSLF requirements 
  • January 1, 2023 – Expected deadline for FFEL borrowers to consolidate their loans to receive qualifying payments from the one-time revision of IDR payment inaccuracies.

 

April 2022: Program Account Adjustment

On April 19, 2022, the Department of Education announced several changes that will help borrowers pursuing PSLF or Income-Driven Repayment Forgiveness, a program similar to PSLF that does not have restrictions on your employer but requires 240 qualifying payments rather than 120.

This adjustment will provide a one-time revision of income-driven repayment counters to address past inaccuracies. This revision will result in many borrowers having more qualifying payments and automatically discharging the loans of many who may already qualify with no tax liability.

Qualifying payments will now include:

  • Revision of IDR qualifying payments for both Direct Loans and Federal Family Education Loans (FFEL).
  • Any months in which you had time in a repayment status, regardless of the payments made, loan type, or repayment plan
  • 12 or more months of consecutive forbearance or 36 or more months of cumulative forbearance
  • Months spent in deferment (with the exception of in-school deferment) before 2013
  • Any time in repayment before consolidation on consolidated loans

 

However, it is essential to note that if you hold Federal Family Education Loans (FFEL), you can only benefit from the adjustments if you consolidate before the account adjustment, estimated to be no sooner than January 1, 2023.

This revision is estimated to result in automatic debt cancellation for at least 40,000 borrowers under PSLF and several thousand borrowers for IDRF. They expect more than 3.6 million borrowers to receive at least three additional years of credit for these programs.

The DoE plans to reform the IDR tracking procedures alongside the count revision. However, borrowers will not see the effect of this revision until the fall of 2022.

October 2021: The PSLF Waiver

On October 6, 2021, the Department of Education (DoE) introduced a temporarily limited waiver aimed to provide over 500,000 previously ineligible borrowers with an avenue to apply for PSLF. Planned to expire on October 31, 2022, this waiver allows previous ineligible payments to be counted towards the necessary 120 payments, as long as the borrower was working for an eligible employer at the time. Incorrect loan types or being on the wrong repayment plan were no longer reasons to be rejected if proper action is taken before the waiver expires.

March 2020: The CARES Act

The first course of action came during the midst of the COVID-19 pandemic. The uncertainty of how businesses would handle stay-at-home orders left many wondering how they would be able to pay the bills, let alone their student loans. The CARES Act covered 95% of borrowers, putting a pause on student loan payments and interest. Those in default were waived from wage garnishment and tax refund reduction penalties. During this period, despite no payments being necessary, those who were currently on track to receive qualifying PSLF payments received credit each month towards the necessary 120.

While originally intended to be lifted on September 30, 2020, the CARES Act’s effect on student loans has been extended through August 31, 2022.