WASHINGTON – The promise of the civil service loan forgiveness program was supposed to be simple.
If college graduates were willing to forgo the lucrative private sector salary and work instead as a teacher, police officer, or civil servant, any federal student debt they had after 10 years of payments would be canceled.
The program turned out to be anything but forgiving. More than a decade after its inception in 2007, thousands upon thousands of borrowers have sought forgiveness. Almost all of them were rejected by the federal government.
That’s supposed to change, starting this fall.
The Education Department on Wednesday announced a major overhaul of the loan cancellation program that will immediately write off 22,000 borrowers to the tune of $ 1.7 billion. The government has estimated that another 27,000 borrowers could see about $ 2.8 billion in debt canceled if they prove they have qualifying employment.
The changes are designed to allow borrowers to correct errors and account for payments they were trying to make for the program. This should shorten the time during which more than 550,000 borrowers – those who have already consolidated their loans – are required to make payments to qualify for a discount, the government said.
The overhaul of the civil service loan forgiveness program is President Joe Biden’s latest effort to address the country’s growing $ 1.7 trillion student loan debt and ease the burden on distressed borrowers.
Progressives called on Biden to cancel up to $ 50,000 in loans per borrower, but the executive branch has instead deployed targeted relief, for example for those who have been defrauded by their college or those who are permanently disabled. With the changes to the public service agenda, the federal government will forgiveness of approximately $ 11.5 billion in student loan debt.
“Borrowers who devote a decade of their life to public service should be able to count on the promise of the forgiveness of public service loans,” Education Secretary Miguel Cardona said. “The system has not delivered on its promise to date, but that is about to change for many borrowers who have served their communities and their country.”
The changes come after a series of critical reports about the inaccessibility of Public Service Loan Forgiveness. CBS’s “60 Minutes” recently reported on military veterans who tried and failed to obtain pardon.
And the Student Borrower Protection Center, an advocacy group, found that the FedLoan loan service had refused forgiveness to thousands of borrowers due to minor mistakes or paperwork issues.
Seth Frotman, the group’s executive director, is a frequent critic of the Department of Education’s handling of student loans, particularly the civil service loan forgiveness program. But he said he was encouraged by the changes proposed by the ministry.
“It’s a good day for teachers, nurses, the military and millions of workers on the frontlines of the pandemic,” Frotman said. “For too long, those who give the most to our communities and our country have been tested and forced to take on debts that should have been canceled.”
And two of the nation’s largest teacher unions, the American Federation of Teachers and the National Education Association, in separate statements welcomed the changes and said they would benefit educators and other public sector employees. Both had long pushed the education ministry to fix what they described as a flawed program.
Strict requirements hamper relief
The problem with the forgiveness of civil service loans stems from the requirements for relief.
Borrowers who ask for forgiveness must be in a job that the government considers a public service, and they must make 120 payments through the income-based repayment plan. And only borrowers with loans from the federal government, called direct loans, are eligible for relief.
Tens of thousands of people thought they qualified but missed one of those criteria – paying on the wrong type of loan, not signing up for an income-based repayment plan before making payments, or working at a job they later found out was not. didn’t qualify for forgiveness – and ended up with no luck.
Before the announcement, only 16,000 borrowers had had their debt canceled through the program, according to the education ministry. About 1.3 million people are trying to get rid of their debts through the program.
The changes to the loan exemption program will take place in two parts. The agency will first relax some of the rules that prevented eligible borrowers from paying off their loans, via a limited waiver. The government, for example, will allow payments on any one person’s loan to count toward the total number required for forgiveness.
The ministry said it would automatically credit borrowers who already have direct loans and who have proven they are working in an eligible field. Others who have not enrolled in the program or have ineligible federal loans will have to request a forgiveness, which may require them to consolidate their loans. Borrowers will have until October 2022 to apply.
The Department of Education also plans to review all denied civil service loan forgiveness requests and give federal employees automatically. credit towards forgiveness.
Other changes will occur more slowly through regulations made by “rule-making,” a long and complicated bureaucratic back-and-forth between government and other stakeholders.
Only certain loans can be forgiven
One of the most problematic elements of civil service loan cancellation: many borrowers did not have the right type of loan and did not realize that they were not entitled to relief.
When the loan forgiveness program was first introduced, many of the loans offered by the federal government were federal family education loans, or loans made by private entities but insured by the federal government. The government stopped offering these loans in 2010 and now relies on direct loans – the type eligible for forgiveness. The Education Department said about 60% of borrowers with an approved employer hold FFEL loans.
“To a layman, it wouldn’t be very obvious that you had the wrong type of loan,” said Betsy Mayotte, president of the Institute of Student Loan Advisors.
And borrowers had no choice but to what type of loan they received, she said. The Mayotte nonprofit has helped thousands of borrowers pay off their student loans and is helping moderate a subreddit focused on forgiveness for public service loans. She said that many of the issues she deals with these days relate to borrowers with ineligible loans.
Mayotte said the short-term waiver would help people, but wondered if borrowers who miss the waiver period might be in the same boat on November 1, 2022.
She said worried borrowers might consider consolidating their loans into one direct loan if they haven’t already.
If borrowers aren’t sure what type of loan they have, Mayotte said, they can ask their loan officer for this information or they can go to the federal government’s website for financial assistance.