ED announces PSLF overhaul, aims to boost 2% approval rate

Education Department Secretary Cardona today announced a remarkably bold, yet sadly incomplete, emergency suspension of regulatory barriers to the Public Service Loan Forgiveness program. The Secretary is using statutory authority to suspend, temporarily, some of the needless regulatory hurdles (as I and others have advocated) that have produced a 98% rejection rate for the program for the past five years. On the other hand, today’s announcement does not appear to address all of the hurdles, and some details remain vague. The Department estimates it can immediately approve 22,000 additional loan cancellations, increasing the approval rate from 2% to 5%, and another 27,000 need only obtain employment certifications for periods in which they already made payments, bumping the approval rate up another 3% to 4%. Another 550,000 borrowers may receive several years of additional credit towards the ten-year required total payment period, lining them up for discharges in future years.

In its biggest improvement the Department will allow all payments made on all loan types and all repayment plans to count towards the 120 month required total. Less clear is how the Department is addressing the two remaining hurdles. Many borrowers find payments are not counted because the payment is not within 15 days before or after the due date or is not in the exact amount the servicer requires. Early or lump-sum multi-month payments don’t receive full credit. The Department’s press release says the waiver will address this issue, but does not say how, or to what extent. Extending the window by 15 or 30 days, or the payment amount tolerance by 10% or 20%, will not do.  UPDATE: at negotiated rulemaking today, USED announces they will stop counting payments, and instead count time in repayment. If true this is a HUGE improvement. They mentioned in some cases borrower payment counts now go from zero to 120.

Borrowers also face a third hurdle, having to get employer certifications that their jobs qualify as public service covering each and every one of the 120 qualifying months. The Department’s servicer has rejected many certifications, the Department has failed to establish a universal database of qualifying employers, and some borrowers simply have difficulty filling gaps of long-ago employment. The Department says it will improve its employer database and audit prior rejections, but does not propose as I have recommended to allow borrower self-certification of qualifying employment.

The Department has not released counts of PSLF applications, approvals, and rejections since April 2021. At that point, 322,000 borrowers had applied for PSLF loan discharges between November 2020 and April 2021. For some reason the Department omitted cumulative totals going back to the first PSLF applications in 2017. Of the 322,000 applications in that period, 3,458 were approved for discharge. The rest (98%) were rejected or remained in process. Under the Department’s new announcement, 22,000 borrowers should now get immediate discharges and 27,000 may get discharges by submitting employment certification forms for missing time periods. Because the 322,000 number was a point in time, more borrowers are applying and entering the queue every day. More than 1.2 million borrowers have submitted eligible employment forms and plan to apply for PSLF discharges when they reach 120 payments. All this is to say that the Department’s new initiative is chipping away at the 98% rejection rate, and best case, might eventually get it down to 50% or so.

The other elephant in the room is that Fedloan, the servicing contractor responsible for PSLF accounts, is not renewing its contract that expires at the end of 2021. This initiative will have to be handled by a new Education Department contractor with all the simultaneous challenges of servicing transfers.

Without a simple self-certification of eligible employment, and full credit for all payments regardless of when made and in what amount, the PSLF program will continue falling woefully short of its goals. Even a simplified process allowing borrowers to obtain employer verification of current employment only rather than 10 years of past employment could go a long way to making PSLF work. We allow self-certification for income tax returns; why treat student loan borrowers differently?