Education Department to reduce ‘red tape’ on public service loan forgiveness, making it easier for borrowers to qualify

Personal finance

The Biden administration announced Tuesday it is making permanent changes to its public service loan forgiveness plan to make it easier for borrowers to have their loans forgiven.

“Our team has worked to turn public service loan forgiveness from a promise broken into a promise kept,” U.S. Secretary of Education Miguel Cardona said during a press call about the changes.

The PSLF program allows those who work for the government or specific nonprofits to get their debt canceled after 10 years, or 120 payments. However, from the start, the path to forgiveness has been plagued with problems, making it hard to get relief.

The new changes will “reduce the red tape that riddled the PSLF program,” according to Cardona.

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Borrowers can get credit for late, partial payments

Under these new regulations, which take effect on July 1, 2023, federal student loan borrowers can get credit for payments that previously didn’t qualify. Those may include partial, late or lump sum payments, payments made under a different repayment plan and credit for periods in deferment and forbearance.

In order to qualify, you must have a direct loan. If you have either a Federal Family Education Loan (FFEL) or a Federal Perkins Loan, you now have until July 2023 to consolidate your loans into direct loans with your servicer.

Check out the consolidation loan application to find out what you’ll need to apply. Since the process can take a few months, borrowers should apply for consolidation by May 1, 2023, department officials said.

The plan also makes permanent some of the changes the Biden administration introduced a year ago with a limited waiver, which ends on Oct. 31.

Now, a borrower who misses the October deadline will have another chance to get their timeline recounted if they were disqualified because of their type of loan or repayment plan. 

Changes bring many loans ‘closer to forgiveness’

Borrowers stand to benefit as early as this fall on the new rules counting payments during deferments or forbearances. Starting in November, borrowers who reach 120 payments toward public service loan forgiveness and borrowers who have 20 years or 25 years of payments under an income-driven repayment plan will start receiving loan discharges.

These executive actions “will bring most loans managed by the department closer to forgiveness,” the Education Department said.

Before any changes to public service loan forgiveness were implemented, “only 3% of borrowers who applied for loan forgiveness had received loan forgiveness,” said higher education expert Mark Kantrowitz.

As of August, the share of borrowers who received forgiveness under the expanded program jumped to roughly 14.5%, he said. Kantrowitz estimates that more than 17% of applicants received loan forgiveness as of last month.

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