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There’s been a ton of political intrigue coming out of Washington in recent weeks. President Biden is trying to push through a $3.5 trillion infrastructure spending bill that the Republicans are hell-bent on blocking. There’s a big brouhaha in Texas about abortion rights. And the debt ceiling almost didn’t get raised, potentially threatening the credit of the US government (again!).
All those stories have already been covered by the mainstream media, so I’m not going to rehash those here. But one story caught my eye when it briefly popped up on my newsfeed for a day before being buried by the rest of the 24-hour news cycle. And that story is about student loans.
It’s no secret that Americans have a student debt problem. I get dozens of emails a week from readers telling us about their financial situation, and at a glance I can often pick out which ones are American. The tens (and often hundreds) of thousands of dollars worth of student debt is a dead giveaway.
While the quality and prestige of America’s higher education institutions like Harvard or M.I.T. are known throughout the world, American students pay dearly for that education. No other country burdens their students with crippling loans the way that the US of A does and here’s why.
Rather than adopting a subsidy system like France that reduces (or eliminates) tuition fees, America decided to provide taxpayer-backed loans. And rather than making the process of repaying those loans automatically deducted off your pay like Australia or the UK, America opted to put the burden of managing those loan payments squarely on the shoulders of students still struggling with starting their careers. And rather than give people the ability to have their loans forgiven if the degree turned out to be useless like Canada, America decided to make it impossible to discharge student loans through bankruptcy, dooming people into a never-ending cycle of debt that follows people to their graves.
It’s an…interesting system.
That being said, there are still a few ways to get out of under crushing un-payable student debt, and one of those is a topic we’ve written about before: The Public Service Loan Forgiveness (PSLF) Program.
To sum it up, the PSLF allows people who work in public sector jobs who make continuous qualifying payments for 10 years the ability to discharge their debt. And even better, unlike other loan forgiveness measures, debt discharged through the PSLF doesn’t create a big tax bill! Pretty cool, right?
Unfortunately, the devil is in the details.
First of all, you have to work for a qualifying employer. This means your employer must be a federal, state, or local government agency, or alternatively, a not-for-profit organization. As we’ve written before, it’s not always obvious when this requirement is met, and many people work in jobs that qualify without realizing it. If you work for the military, that counts. If you’re a doctor working at a hospital, that may count if the hospital is structured as a non-profit. If you’re a researcher working at a university or college, that may count as many colleges are also non-profits.
So first, you have to figure out if your job qualifies for eligibility under the PSLF program.
Then, you have to make qualifying payments.
What does qualifying mean? It means you must…
- Have the right type of loan (a Federal William D. Ford Direct Loan)
- Be enrolled in an Income-Driven Repayment (IDR) plan
- Make 120 payments under that IDR plan
See how complicated that is? Especially that first part. A Federal Direct Loan is not the only type of student loan you can get. Loans obtained through the Federal Family Education Loan (FFEL) program don’t count. Neither do loans given out under the Federal Perkins Loan program.
And since very few 18 year olds carefully read the terms and conditions of their loan documents before they sign them, it’s entirely possible (and quite common) for people to think they’re doing the right thing only to find out that all their payments didn’t count towards the PSLF because of a checkbox they ticked wrong 10 years ago.
So while the PSLF program is well-meaning, it’s so needlessly complicated that even though millions of people have been working towards having their loans forgiven under this program, to date only 5,500 people have actually managed to do it successfully. That means over 95%+ of people who applied for loan forgiveness through PSLF were rejected.
That’s where the current administration has decided they want to make some pretty big changes. Namely, they want to make it easier to qualify for this program, which is good, but they also want to make it possible for people who were doing things the wrong way to retroactively qualify, which is awesome.
The New & Improved PSLF Program
While creating entirely new programs requires a bill to pass both chambers of Congress, the HEROES Act passed by George W. Bush in the wake of the 9/11 attacks gave the President the ability to waive certain rules surrounding student loans during times of national emergency unilaterally via Executive Order. And since COVID-19 definitely counts as a national emergency, that’s what Joe Biden did.
Here’s what he changed.
Under the previous system, only payments made to the correct loan type, namely a William T. Belford Direct Loan, counts towards the 120 payments necessary to qualify for the PSLF. If you have the wrong type of loan, it’s possible to switch it to the right type by consolidating the “wrong” loan into the “right” one. Crucially, though, you have to do this before you start making payments. If you make 5 years of payments before realizing your mistake and consolidating, too damned bad. You have to start over.
Under the new rules, if you now consolidate your loan into a William T. Belford Direct Loan, your payments under the previous loan will now retroactively count towards the 120 payment requirement!
And not only that, the new rules also count payments made under a non-IDR repayment plan now retroactively count as well!
This is a huge deal, as it potentially opens up the program to hundreds of thousands of applicants who were deemed ineligible due to checking off the wrong box on a form. As long as you always paid the required minimum and never defaulted, you may be way closer to having your student loans forgiven than you ever thought possible.
It’s difficult to state how impactful this change could be, because not only does this breathe new life into almost a decade of possibly disqualified payments, during this damned pandemic you may have inadvertently accumulated even more qualified payments without actually paying a cent. And that’s because…
Payments Suspended due to COVID Count as Qualifying Payments
People with student debt already know that in March of 2020, the US government suspended student loan payments and set interest rates to 0% as part of the 2020 CARES act. That was followed by an announcement by the then-Secretary of Education that those months of $0 non-payments would still count towards PSLF payment requirements.
Non-payments by borrowers working full-time for qualifying employers will count toward the 120 payments required by the Public Service Loan Forgiveness program.Forbes.com
Pretty surprising, right? Even more surprising was who made this announcement. The CARES Act was passed in March 2020, by…President Trump.
And the Secretary of Education who is quoted in the article above is none other than Trump appointee Betsy DeVos.
President Biden then expanded this student debt moratorium until January 31, 2022. And then he made these changes to the PSLF program.
Taken together, the student debt moratorium potentially gives every student debt holder nearly 2 years of progress towards debt forgiveness. And depending on their previous repayment history, it could potentially unlock a decade more of previously ineligible payments.
So even though Washington is bitterly divided about pretty much everything, on this one issue of student loans held by people working in public service jobs, somehow both Presidents Trump and Biden inadvertently worked together to give very deserving people a lifeline out of their debt-ridden morass.
And who says bipartisanship is dead?
Automatic Military Enrolment
Oh, and one more thing.
If you are currently reading this article on a government-issued bullet-proof laptop while manning the M240 on the door gun of Ch-47 Chinook, first of all, maybe put the laptop down and watch where you’re shooting? And secondly, congratulations, because as a member of the military, this program just got a whole lot easier for you!
Under the new rules, the Department of Education will begin automatically applying your time spent in military service towards the loan forgiveness requirements. Even if your loans are in forbearance or deferment (which is common for members who are deployed into active combat zones), you can look forward to coming back home with a nice chunk of your clock towards loan forgiveness taken away. From the Department of Education…
Federal Student Aid will develop and implement a process to address periods of student loan deferments and forbearance for active-duty service members and will update affected borrowers to let them know what they need to do to take advantage of this changeDepartment of Education
The Clock is Ticking
The student debt situation in America has often been referred to as a crisis, and it’s difficult to see it as anything else.
In America, it is extremely common to wind up with six figures in student debt and yet work at McDonalds. It’s easy to point fingers are people who pick useless degrees, but personally, we regularly see people who write to us who are in this situation through no fault of their own. All it takes is a medical emergency, or an unplanned pregnancy, or a mental health breakdown in their last year of medical school and BAM. You get all the debt but none of the benefit because you never graduated. And we all know that to the job market, 99% of a medical degree is worth about the same as never studying medicine at all.
And as great as the changes to the PSLF are, know this: They are not permanent.
From the US government…
This change will apply to student loan borrowers with Direct Loans, those who have already consolidated into the Direct Loan Program, and those who consolidate into the Direct Loan Program by Oct. 31, 2022.Department of Education
Why aren’t these changes permanent? If you remember from earlier on in this article, what the Biden administration is doing unilaterally is only possible during a time of national emergency.
And this national emergency of COVID isn’t going to last forever.
So there you have it. What I just described is in effect right now. But it won’t last forever. So if you’re reading this, stop what you’re doing, go get all your previous loan statements, and click this link.
Except you, CH-47 door gunner. Finish what you’re doing, land, and then click this link.
You literally can’t afford not to.
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