A week ago, the Biden administration announced that it will be enacting transformational changes to Public Service Loan Forgiveness (PSLF), a federal student loan forgiveness program that has long been plagued by complicated eligibility criteria and low approval rates.
Under its new “Limited PSLF Waiver” program, which will be available until October 31, 2022, the Department of Education will temporarily relax the original eligibility criteria that had restricted PSLF to only certain types of federal student loans and certain repayment programs. By broadening eligibility to more federal student loans — including FFEL-program loans — and any kind of repayment plan, over a half a million student loan borrowers are expected to advance two or more years closer to student loan forgiveness, with thousands potentially becoming immediately eligible for complete loan forgiveness within the next year.
The changes to PSLF are significant, even though it excludes some borrowers from relief. However, the Limited PSLF Waiver also includes several unique benefits that are not getting much attention. Here’s an overview.
Some Borrowers May Be Eligible For Refunds After Student Loan Forgiveness Through PSLF
The PSLF program requires 120 qualifying payments to become eligible for student loan forgiveness. With the definition of a “qualifying payment” dramatically expanding under the new changes to the program, more people are expected to reach the 120-payment threshold soon. And there will be some borrowers who, as a result of the PSLF changes, will go from being far short of 120 qualifying payments to exceeding 120 qualifying payments.
Borrowers who have made more than 120 qualifying payments towards PSLF may be able to get their overpayments refunded. According to the Department of Education, “If you made more than 120 payments on an existing Direct Loan, you will automatically receive a refund for the qualifying payments you made in excess of 120.”
The Department has not clarified, however, whether all 120-plus payments must have been made only on an existing Direct loan (although the Department’s initial language suggests that the answer is “yes”). For example, a borrower who has made less than 120 payments on a Direct loan, but now can factor in earlier payments on a FFEL loan, may exceed 120 total payments. The Department of Education should issue further guidance in the coming weeks or months.
Some Borrowers May Not Need To Be Working In Qualifying Employment When Receiving Student Loan Forgiveness Through The New PSLF Changes
The PSLF program traditionally required that once a borrower reaches 120 qualifying payments, they must remain employed in qualifying public service employment after the 120th payment while their PSLF application is processed. That process could take months. But the borrower was not permitted to leave their qualifying employment until their PSLF application was approved and forgiveness was ultimately granted.
Under the Department’s new Limited PSLF Waiver, that requirement has been eliminated for the duration of the waiver program (to October 31, 2022). Borrowers must still have been in qualifying employment when all 120 payments were made, but they no longer have to continue working in qualifying employment when they receive loan forgiveness, provided they apply for loan forgiveness before October 31, 2022. According to the Department, “Although under normal PSLF Program rules you must be employed at a qualifying employer when you receive forgiveness, that requirement is waived during this limited-time opportunity.”
Some Deferment Periods Will Now Count Towards Loan Forgiveness Under PSLF
Previously, deferment and forbearance periods — during which no payments are due — would not count towards PSLF. Under the original PSLF rules, a borrower had to be in repayment under a specific repayment plan based on income.
Under the Limited PSLF Waiver, that will change for active-duty military service members. The Department says that it “will allow months spent on active duty to count toward PSLF, even if the service member’s loans were on a deferment or forbearance rather than in active repayment.”
Partial Payments May Now Count Towards PSLF
For a payment to count as a “qualifying payment” under the original PSLF rules, a payment needed to have been made in full and on time. But that rule will be relaxed under the Limited PSLF Waiver. According to the Department oof Education, “Under the new rules, any prior payment made will count as a qualifying payment, regardless of… whether the payment was made in full or on time. All you need is qualifying employment.”
The Department has not provided any further details yet. For example, if a monthly payment was $100, would the Department count both a $99 payment, as well as $2 payment? The initial guidance by the Department suggests that the answer is “yes,” but more information should be released in the coming months.
Key Takeaways For Student Loan Borrowers
Borrowers should be aware that the huge changes to the PSLF program are a limited-time opportunity, availably only for the next year — to October 31, 2022. Borrowers may need to take certain steps to obtain the benefits of the expanded program. You can learn more here.