The share of borrowers who had their student loans wiped away through a beleaguered forgiveness program ticked up slightly over the past few months, but the rejection rate remains at 99%.
As of Sept. 30, more than 41,000 borrowers applied to have their loans discharged under the Public Service Loan Forgiveness program, an initiative signed into law in 2007, which allows public servants to have certain federal loans forgiven after at least 10 years of on-time payments. So far, just 206 have had their loans discharged, according to data published by the Department of Education Thursday.
This week’s report paints a slightly rosier picture than the last time the government published this data in September. At that time, officials reported that as of June 30, 28,000 borrowers had submitted their applications for forgiveness and just 96 had their loans discharged. Despite the marginal improvement this time around, the program’s acceptance rate remains at less than 1%.
Few experts expected a large number of borrowers to have their loans forgiven under the program this year. Still, the high rate of rejected applicants is the latest evidence of the gap between the lofty goals of PSLF — to make it possible for borrowers with high levels of student debt to pursue well-meaning, but often low-paying careers — and the fine print. Advocates worried for years the first cohort of borrowers claiming forgiveness under the program would face a rude awakening. Reports from the Government Accountability Office and the Consumer Financial Protection Bureau also sounded alarm.
Now it appears their worries have come to fruition.
Seth Frotman, the former student-loan ombudsman at the CFPB, an advocacy group, said he’s concerned this data is just the ‘tip of the iceberg.’
Seth Frotman, the former student-loan ombudsman at the CFPB and the executive director at the Student Borrower Protection Center, an advocacy group, said he’s concerned this data is just the “tip of the iceberg,” of the challenges public servants may face accessing forgiveness under the program. Given the high rate of rejection reported by the Department and the last several years of warning signs about the obstacles borrowers faced, Frotman said he doesn’t know how onlookers could be “anything but outraged.”
“Every piece of data we see demonstrates that the promises made to public servants throughout the country 10 years ago have been broken,” he said.
For borrowers to have their loans forgiven under PSLF, they need to meet a slew of requirements. They must have the right type of federal loan — only Direct Loans are eligible, — be in the correct repayment plan (not all federal student loan repayment plans qualify) and work in the right type of job, typically any level of government or a 501(c)(3).
In addition, borrowers need to make 120 on-time monthly payments before their loans will be discharged. That can be more difficult than it sounds. Typically, when borrowers put more than their required monthly payment towards their debt, the due date for their following payment is more than a month later than when they overpaid. That’s known as paid-ahead status. Any payments borrowers make in paid-ahead status don’t qualify for PSLF.
In 2012, the Department introduced a new document borrowers can submit to the agency to check whether their job qualifies them for forgiveness and how many of the required 120 payments they’ve already made.
The Department of Education has been working over the past several years to make borrowers more aware of the program and to provide them with ways to check whether they’re on track for forgiveness. In 2012, the Department introduced the Employer Certification Form, a document borrowers can submit to the agency to check whether their job qualifies them for forgiveness and how many of the required 120 payments they’ve already made. Experts suggest borrowers interested in PSLF submit this form at least once a year. More recently, the agency launched an online tool borrowers can use to assess whether their loans and employer qualify for the program. Earlier this year, Congress also authorized a temporary expansion of PSLF for borrowers who were in the wrong repayment program, but otherwise qualified.
Still, advocates have warned that the government and student-loan companies didn’t do enough, particularly in the early years of PSLF, to make eligible borrowers aware of the program and its requirements. Some have gone even further, alleging that student-loan companies misled eligible borrowers, who wound up making payments on the wrong type of loan or repayment program for years without knowing it jeopardized their shot at forgiveness.
The number of borrowers receiving relief under the program will grow substantially in the coming years, said Betsy Mayotte, the president of the Institute of Student Loan Advisors.
Frotman’s organization, SPBC, and the American Federation of Teachers, a national teachers union, announced Thursday that they’re launching an investigation through public records requests into how student-loan companies and the government have undermined the program. One goal of the probe: To establish findings litigators representing public servants who believe they’ve been mislead can use to bolster their cases.
“We see both incompetence at the Department of Education and rampant illegal practices happening at the servicers, which leave borrowers on the hook for thousands and thousands of dollars of student-loan payments that they should never have to pay,” Frotman said. “This is a national outrage that we’re doing this to those who give back so much.”
Some offer a more optimistic interpretation of the data released Thursday. While the sheer number of rejected applications for forgiveness is troubling, the number of borrowers receiving relief under the program will grow substantially in the coming years, said Betsy Mayotte, the president of the Institute of Student Loan Advisors.
That’s because it’s been less than 10 years since most of the repayment programs that are eligible for PSLF were created. What’s more, it’s only recently that the bulk of new student-loan borrowers were receiving loans that would eligible for the program.
“We don’t expect a lot of people to actually qualify for forgiveness in 2018,” Mayotte said. “If we’re still seeing that number of rejections four years from now, I’m going to be more alarmed.”
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