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NextGen Magazine


Education Dept. Overhauls Public Service Loan Forgiveness Program

Chris Gaetano
Published Date:
Oct 6, 2021

The Department of Education has made major overhauls to the program that promised to forgive people's student loans if they entered and stayed in a public service profession for 10 years, but which bore fruit for only a small minority of participants, the New York Times reported. 

The program, established in 2007 to encourage Americans to go into lower-paying government and nonprofit jobs, has long been troubled despite several efforts to fix it. While those in the program were promised that their debts would be wiped out after 10 years of work, a host of bureaucratic terms and conditions have meant that only 2 percent of those who applied actually got relief.

One of the biggest obstacles is what's called the "wrong loan" problem, namely that debt incurred through nongovernmental channels, even if backed by the federal government, is not within the scope of the program. Only loans directly made by the federal government do.  As of 2010, all federal student loans have been made and owned directly by the Education Department, but that was not the case before 2010.  Many students  were not informed of this restriction, and so they continued paying back their loans, mistakenly thinking that the payments counted toward the 120 monthly payments needed for forgiveness.

In response, the Department of Education is offering a limited waiver that will retroactively count those payments, which will benefit around 550,000 borrowers. Some 22,000 of those borrowers will have their debts wiped out immediately, and while this is but a small fraction of the total affected, it nonetheless is higher than the overall number of borrowers who had their debts forgiven before, just 16,000. 

Beyond that, the department will also offer a temporary waiver to count payments made on ineligible payment plans It will also automate eligibility for federal employees and military service members, review all previously denied applications to find and correct errors, and offer an appeals process for those who believe they were harmed by processing mistakes. Further, those on active military duty who put their loans on hold while they were deployed—a perk they are legally entitled to—will have those months counted toward their required 120 payments.

President Biden previously pledged to forgive $10,000 of every borrower's federal student debt, but there seems to have been little action on this front so far. However, he has still extended relief to tens of thousands of specific types of borrowers, such as those who went to ITT Technical Institute, which was found to have misled borrowers as to the transferability of its credits.