Under Joe Biden’s administration, the Public Service Loan Forgiveness Program—which was established by the George W. Bush administration in 2007 to incentivize individuals to work for the government and nonprofits—has expanded dramatically. Economist William Chittenden was questioned by The Conversation on the details of this student loan scheme, including eligibility requirements and recent changes.
How does it the program work?
Bosses must be employed by the government or a nonprofit organization in order to be eligible.
Many nurses, teachers, first responders, Peace Corps volunteers, and social professionals are among the Americans who are benefiting from this debt relief.
Once enrolled, borrowers who continue to work in public service and who make ten years of timely monthly payments can have the outstanding sum on their school loans canceled.
Only the remaining balance of the direct loans made by the Department of Education through this program may be canceled by the government. Borrowers still owe private lenders any outstanding college debt.
Why are so many loans being forgiven recently?
After the required ten years of timely payments, borrowers started to apply in 2017 to have their remaining obligations erased. Nevertheless, over 98% of these applications were turned down.
Technicalities were the reason for the great bulk of these denials. Even after keeping their half of the bargain, many borrowers felt taken advantage of since they were left with obligations they didn’t think they should have to pay back. A class-action lawsuit was filed by some of them, and the Biden administration settled it in 2021.
The government redesigned and expedited the Public Service Loan Forgiveness program after realizing these issues.
In 2021, the Department of Education made a number of significant announcements. The federal government made it possible for borrowers to receive credit for previous payments and broadened the categories of loans that qualify for forgiveness.
The majority of student loan borrowers, however, were not affected by this move until October 2023, when other students’ student loan payments restarted following a break caused by the COVID-19 epidemic that began in March 2020.
How much has been forgiven so far based on records?
Through this initiative, an estimated 750,000 Americans have had US$53.5 billion in student debt forgiven. Over one-third of the approximately $132 billion in student debt relief that the Biden administration claims to have approved until late 2023 for 3.6 million borrowers through various initiatives is represented by this amount.
However, fewer than 10% of all outstanding debt has been removed from the government’s ledgers as a result of the deleted debt. The total amount of federal student loan debt owed by 43.6 million Americans is $1.64 trillion. A number of the Biden administration’s attempts to eliminate more substantial portions of this debt have been thwarted by Supreme Court-level legal challenges.
Due to a difference between the value of newly issued student loans and the value of existing student loans that were forgiven or paid off, the overall amount of student debt, including both federal and private loans, decreased slightly in the second and third quarters of 2023.
As of right now, the Public Service Loan Forgiveness program has no end date. However, in order to be eligible for this program as well as some other forms of student loan forgiveness, certain borrowers have until December 31, 2023, to attempt repayment consolidation.
What about people in college now? Or those going to college still?
Should they choose to pursue careers in public service, both current and prospective college students are eligible to apply to the program.
Furthermore, available to borrowers of student loans are a number of income-driven repayment programs. Depending on the particular plan, the monthly student loan payment under these arrangements usually ranges from 5% to 20% of the borrower’s monthly disposable income.
After making on-time monthly payments for 20 to 25 years, any remaining loan balances will be forgiven. The Public Service Loan Forgiveness program is also open to applicants who follow an income-driven repayment plan.
Based on their 20 years of timely student loan payments, an estimated 855,000 borrowers are currently eligible for $42 billion in loan forgiveness.
What else is there to know about the program?
Many Americans have taken out student loans in the last few decades in order to attend colleges or technical schools that have deceived them. Some borrowers obtained loans to enroll in educational institutions that closed their doors before they could finish their degrees. The borrower defense to repayment program implemented by the Biden administration has simplified the process for these individuals to get their loans canceled.
Additionally, about 513,000 borrowers with total and permanent disabilities have had their $11.7 billion in debt forgiven by the Biden administration.
Furthermore, a lot of borrowers now owe more on their loans than they did when they first took out the loans. Furthermore, some Americans have been making college debt payments for at least 25 years. Additionally, the Department of Education is thinking about granting loan forgiveness to these former students.
