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The federal program had previously failed to deliver on its promise of easing student loans to thousands of public workers, including teachers, police, and firefighters.
In October, the U.S. Department of Education (DOE) announced overwhelming changes to the Public Service Loan Forgiveness program in a bid to make amends.
Thousands of borrowers applied for forgiveness, but nearly all the applications were turned down. What happened?
Let's understand the difference between forgiveness, cancellation, and discharge in student loans.
Loan forgiveness, cancellation, or repayment means that you no longer need to pay back part or all of the loan.
The terms forgiveness, cancellation, and discharge are similar but are used differently. When you no longer have to pay off a loan because of work, this is commonly referred to as forgiveness or cancellation.
When you no longer need to repay the loan because of a total and permanent disability or other circumstances, such as the closure of the school you applied to, which is commonly referred to as discharge.
International student loans are available to non-US citizens studying at an institution in the United States. Since international students do not have a credit history in the US, most lenders mandate an American co-signer or a guarantor - someone who can legally sign a loan document or paperwork for your loan application.
The co-signer must be a U.S. citizen or a permanent resident with a strong credit history and income and should have lived in the United States for at least the preceding two years. The co-signer is jointly responsible for repaying the loan if the borrower is unable to repay it in time.
Alternatively, international students can also look for education loan options in their home country.
The maximum loan amount that international students can apply for is the full tuition (referred to as Total Cost of Attendance), including textbooks, health insurance, and other necessary education-related expenses. The specific amount depends on the school you attend and your lender.
The Public Service Loan Forgiveness is a Federal program launched in 2007 to nudge more graduates into public service. It promised to erase the remainder of its federal student loans as long as the first ten years of payments were made.
However, it has proved anything but forgiving. For years, the program has suffered from complex eligibility requirements, low approval rates, and poor oversight by the DOE.
Until the Biden administration rolled in the changes, only 16,000 borrowers had their debt forgiven via the program. About 1.3 million people are still trying to have their debts discharged.
The Public Loan Forgiveness program witnesses failure because of multiple requirements that have to be met for relief. Borrowers seeking forgiveness must work in a job that the government considers public service and make 120 payments through an appropriate income-based repayment plan.
Only borrowers who take loans from the federal government, known as direct loans, qualify for debt relief assistance.
Tens of thousands of people presumed themselves as qualifying but probably missed one of those multiple criteria. They either paid the wrong type of loan, didn't sign up for an income-based repayment plan before paying, or worked for a job they later found out were ineligible.
2. Only Certain Loans Qualify For Forgiveness
One of the most troublesome aspects of canceling public service loans is that many borrowers do not realize they have the wrong type of loan and are not eligible for debt relief.
When the PSLF Program was first introduced, many loans offered by the Federal government were through Family Federal Education Loans or loans made through private agencies insured by the Federal government.
The government stopped rolling out these loans in 2010 and now relies on direct loans that can be forgiven. The Department of Education reported that approximately 60% of borrowers with approved employers have FFEL loans.
Previously, the government limited eligibility for PSLF programs to only certain types of Federal student loans and specific repayment plans.
However, by October 2022, borrowers who have paid for ten years or more in an eligible occupation such as a Federal, state, or local government, non-profit, or US military positions are now eligible, irrespective of the type of loan or repayment plan.
Past loan repayments that were ineligible are now considered, thereby bringing some borrowers closer to forgiveness. This is expected to be especially helpful for borrowers who take out Federal Family Education Loans.
2. How Do I Know If My Past Or Current Employer Qualifies For PSLF?
To evaluate whether you work for a qualifying employer, you can use the Federal Student Aid website tools.
It provides information on the employers that meet the requirements for the PSLF program.
3. How Do I Check Which Loan I Have?
According to Betsy Mayotte, president of the Institute of Student Loan Advisors, if you're not sure about the type of loan you have, you can ask your loan service provider for information or check the federal government website for further assistance. You can do this by logging into your account on Federal Student Aid, navigating to the My Aid page, and scrolling to the Loan Breakdown section.
4. If I Qualify For Relief, What Next?
The changes to the loan forgiveness program will be executed in two parts. The agency will first relax some of the rules that prevent eligible borrowers from repaying their loans through a limited waiver.
The Public Service Loan Waiver is available to borrowers with direct loans, Federal Family Education Loans, and Perkins Loans. Parent PLUS loans do not qualify for a limited waiver.
The DOE said it would automatically credit borrowers who have direct loans and have proved employment an eligible field. Others who haven't enrolled are ineligible will have to apply for forgiveness, which may require them to consolidate their loans. Borrowers must apply by October 2022, according to the Federal Student Aid, an office of the U.S. Department of Education.
The DOE also plans to revisit forgiveness applications that were previously rejected and provide automatic relief loans to federal employees. Other changes will occur more slowly through the guidelines created by "rule-making," a long and complex bureaucratic exchange between the government and other stakeholders.
5. How Can You Receive Credit For Past Payments Under The New Rules?
You can get credit for payments made after October 1, 2007. This was when the Government Service Loan Forgiveness Program began. You must apply while you are eligible for additional qualifying benefits.
6. Who Should Consolidate Their Loans?
If you have any other type of loans such as Federal Family Education Loan Program loans, Federal Perkins Loans, or miscellaneous Federal student loans that aren't direct loans, it is imminent to consolidate them into a direct loan by October 31, 2022, under the Federal Student Aid Program.
This is important to borrowers because they will not get any credit for payments made if the consolidation exceeds this date. After completing the consolidation process, you can submit the PSLF to the loan servicing agent.
Many non-US citizens qualify for federal student aid. Check for your eligibility on the page for non-U.S. citizens of Federal Student Aid, the U.S. Department of Education.
Note that you are NOT an eligible non-citizen if:
However, there may be some scholarships and other financial aid available. Check with your country's U.S. embassy or consulate or with the appropriate government office in India to learn about their offerings. You can even try the U.S. Department of Labor's free online scholarship search. Additionally, the school you plan to attend may offer aid for students like you.
Redesigning the Public Service Loan Forgiveness program is President Joe Biden's latest effort to address the nation's rising $1.7 trillion in student loan debt and ease the burden of struggling borrowers.
Other student loan debts canceled under the Biden administration include:
The latest overhaul also allows borrowers to correct mistakes and calculate the payments they were trying to make to the program. This will reduce the amount of time over 550,000 borrowers who had already consolidated their loans had to pay to qualify for forgiveness.
The change will immediately cancel 22,000 delinquent loans worth $1.7 billion. The government estimates that an additional 27,000 borrowers could get about $2.8 billion in debt relief if they could prove employment in eligible jobs.
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