Sept. 11, 2017
This fall, for the first time ever, borrowers who have made 120 qualifying payments can avail themselves of the Public Service Loan Forgiveness program (PSLF) to eliminate their remaining federal student loan debt. Ahead of its implementation, we’ve drafted some recommendations to ensure smooth sailing and a better, more targeted program. This post, detailing recommendations for Congress, is the final in a three-part series on PSLF. Check out the first post for recommendations to the Department of Education, and the second post for recommendations to improve outreach and ensure borrowers are on top of their loans.
In our last posts, we gave recommendations for the Department of Education as it heads into the first year of granting forgiveness to public service employees who fulfill the requirements of the Public Service Loan Forgiveness program, and recommendations to improve outreach, including tips for borrowers. But those questions are only a part of the problem. Congress wrote the program, full of vaguely defined terms. If Congress wants the program to be well targeted, cleanly implemented, and sustainable, it needs to make some changes.
Recommendation #1: Limit Public Service Loan Forgiveness to ensure it can be implemented more readily.
Congress should limit the PSLF program by defining only government employers and 501(c)(3) organizations as qualified employers. Other categories of public service, like public interest law, open up a huge range of implementation challenges, and will likely represent only a very small share of PSLF borrowers. Government and 501(c)(3) employers will cover the vast majority of cases, and will avoid forcing the Department to make more challenging determinations that will undoubtedly include an element of judgment calls that will take an enormous amount of time and effort.
On the other hand, Congress shouldn’t go even narrower, either. Government employers and nonprofit 501(c)(3) organizations are both (relatively) clear-cut categories, and the Department can work with those in making fair and reasonable determinations of borrowers’ eligibility. Any narrower subset would reopen the same concerns as exist now, so proposals to limit it to, say, “teachers and firefighters” or other popular groups of public servants should be scrapped. That goes for farmers, too.
Recommendation #2: Cap the benefits of Public Service Loan Forgiveness.
Public Service Loan Forgiveness is set to cost a pretty penny over the coming years -- a sign of the program’s effectiveness in helping public servants, but one that also makes it a prime target for elimination. There’s also early evidence to suggest graduate student borrowers may be most likely to benefit, and those benefits could be used by colleges and universities to justify jacking up tuition for graduate borrowers. To guarantee the sustainability of PSLF over the long term, Congress should cap the benefits to ensure it helps many borrowers, but not to an unlimited degree.
A reasonable cap on individuals’ available amount of loan forgiveness can ensure it’s better targeted to lower-income earners and save a bundle over the long run. For instance, Congress could adopt the proposal to cap forgiveness at $57,500--the maximum loan balance for independent undergraduate borrowers--after 10 years’ worth of payments, ensuring borrowers can only receive forgiveness once and for no more than that amount. Doing so would save about $6.7 billion, funding that could be redirected to the Pell Grant program to increase the amount of front-end grant aid available to low-income undergraduates.
Recommendation #3: Support efforts to ensure more eligible borrowers gain access to the program.
In our first post, we recommended that the Department of Education coordinate with other federal agencies to ensure data matches that more easily identify applicants who appear to be eligible for the program and verify employment certifications. But those kinds of data matches can require months or even years of negotiations to establish. If Congress provided a directive to the agencies to establish the match--and provided funding to support its maintenance--things would move more quickly and smoothly.
Additionally, Congress could improve outreach by requiring employers of nonprofit organizations to provide information about Public Service Loan Forgiveness to their employees. For instance, the existing Obamacare forms (1095-B or C) that indicate health insurance coverage--which we identified in our first post as ones that should be acceptable as verification of employment--could be built out to include information about the PSLF program. Doing so would both let more borrowers know about the program and allow borrowers to use the very documentation as part of the basis for a determination as to whether they meet the employer requirements for the program.