Planning matters

Big News for Student Loan Forgiveness

Student loan rules and regulations have seen a variety of changes since the start of the of the COVID-19 pandemic. However, if you are pursuing, or have ever pursued, Public Service Loan Forgiveness (PSLF) then the newest pandemic-related change by the Department of Education could be the most impactful change yet.

While the ongoing COVID-19 pandemic has wreaked havoc across our personal lives and the economy in general, student loan borrowers have received some of the greatest relief during this upheaval. Active federal student loans have seen a suspension of loan payments, a 0% interest rate, and stopped collections on defaulted loans since August of 2021. (But beware, student loan payments are set to resume January 31, 2022, with no further extensions of the moratorium in sight.)

Despite this relief there is still one group that has been stymied for years in their efforts to ease their student debt burden – those pursuing Public Student Loan Forgiveness (PSLF). PSLF was created in 2007 through the College Cost Reduction and Access Act. The program was designed to forgive the student loans of anyone who worked for a qualifying government or non-profit organization and made on-time payments for ten consecutive years would then have their remaining loan balance forgiven. Sounds relatively straightforward, right?

Well as of late 2020 the success rate for borrowers pursuing forgiveness of their student loans through PSLF was less than one percent! If that number seems devastatingly low to you, trust your instincts (see visual in graph). The program was plagued by complicated requirements that proved nearly impossible to navigate for most borrowers.

The current administration has successfully pursued forgiveness for some groups with student loans, such as those with total and permanent disabilities and those who attended predatory for-profit colleges, but the vast majority of borrowers didn’t benefit from these actions. That all changed on October 6th, when the Department of Education announced sweeping changes to rules for the PSLF program. The new rules simplify the previous ones and open a window for those pursuing PSLF to take advantage of the updated system. Here are the biggest changes borrowers should be aware of:

  • Any prior payment made will count as a qualifying payment [toward PSLF], regardless of loan type, repayment plan, or whether the payment was made in full or on time.
  • This change will apply to student loan borrowers with Direct Loans, those who have already consolidated into the Direct Loan Program, and those who consolidate into the Direct Loan Program by Oct. 31, 2022.
  • You must have worked full-time for a qualifying employer when prior payments were made.

There are a lot more details to the revamped PSLF program and we encourage you to go to the following website to learn more and see how your specific situation may apply: https://studentaid.gov/announcements-events/pslf-limited-waiver

If you want to discuss your student loan debt situation (or perhaps that of a loved one or dependent) with your financial planner we encourage you to reach out to us today.