The Public Service Loan Forgiveness (PSLF) program, first introduced in 2007 with the goal of encouraging students to work toward careers in teaching, social work, and other public service professions, could quickly become a defunct golden goose that fails to deliver on promises made to hundreds of thousands of graduates counting on loan forgiveness after years of faithful payments on student loans. According to the office of Federal Student Aid, students that make “120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer” will gain the benefit of loan forgiveness for remaining debt, which means the earliest enrollees are just now becoming eligible to see the remainder of debt forgiven. There are currently more than half a million grads on track to receive benefits, starting this October.
Unfortunately, the Trump administration seems intent on throwing a wrench in the works, as evidenced by the recent release of his proposed education budget, which seeks an end to PSLF. With $10.6 billion in proposed cuts (with savings slated to go toward Education Secretary Betsy DeVos’s “school choice” initiative), the PSLF program isn’t the only one on the chopping block. For borrowers that have jumped through numerous hoops and endured hardships to ensure compliance and eligibility, however, the news is a major blow.
What does this announcement mean for students awaiting loan forgiveness? Until the final budget is approved, we won’t know for sure, but the mood is understandably bleak. NPR reported that borrowers with the PSLF program have been feeling “frightened” and “anxious”, among other emotions, about the prospect of losing loan forgiveness. However, you needn’t simply wait around for the other shoe to drop.
You can take control of your financial situation and take advantage of low interest rates when you choose to consolidate and refinance your student loans with a company like Education Loan Finance that puts you on track for speedy repayment. If you’re hesitant to let go of the dream of loan forgiveness, there are a few things you should know before placing your trust in the current administration to honor the benefits promised years ago.
Winter is Coming…in Summer
When seasons change, you know summer will follow spring, and winter comes after fall. There’s a natural progression you can rely on. This is not the case with the PSLF program, it seems, where apparently promises made can be reneged at any time. Just look at the recent case of four attorneys whose employers were approved as “qualified” initially.
These graduates did everything right, but on the eve of their forgiveness, they were informed that their eligibility had been revoked. They launched a lawsuit, backed by the American Bar Association (ABA), to which the Department of Education responded that FedLoan Servicing, which acts on behalf of the Department of Education to process Employment Certification Forms, “does not reflect a final agency action on the borrower’s qualifications for PSLF”. What does this mean? The promise of loan forgiveness could be nothing more than a pipe dream if the Education Department can retroactively revoke qualifying status.
If you’re working toward loan forgiveness yourself, this should certainly worry you, as should the prospect of complete elimination of the plan. You’d hope the government would honor their commitments to hard-working professionals that took out student loans and went into public service jobs based on the promise of loan forgiveness down the line, but there’s no guarantee this will happen, even if by some miracle the current administration doesn’t scuttle the entire program.
Forecast for Your Loans
So, you’ve been toiling away in job that, let’s face it, you might not have taken if not for the PSLF program and the promise of forgiveness at the 10-year mark. How far along are you when it comes to paying your loans? If you work in a low-paying public service job and you’ve been operating on an income-based payment system, you could actually owe more now than when you started, if your payments fail to keep up with accruing interest. What the what? While you’ve been awaiting forgiveness and making steady payments, it’s possible your debt has been growing, and if forgiveness is suddenly off the table, you could find yourself in a terrible financial situation.
Even if you receive loan forgiveness, you’re not out of the woods. Did you know that some loan forgiveness is considered a tax liability? Students that receive forgiveness under the PSLF program enjoy tax exempt status for this financial benefit, but the same cannot be said for those who are eligible for loan forgiveness through income-based repayment plans. Under the Federal Direct Loan Program, also known as the Obama Student Loan Forgiveness Program, borrowers that pay 10% of their income toward student loans for 20-25 years are eligible for loan forgiveness.
Sweet deal, right? Not if you get stuck with a gargantuan bill from the IRS once your loans are forgiven – loan forgiveness is treated like income. You’re basically trading in one type of debt for another, and the IRS is a lot less forgiving, so to speak. You could end up owing the taxman 25% of the amount forgiven for the year your loans are paid off. If $50,000 is forgiven, you could get a subsequent bill from the IRS for $12,500, just for example.
Okay, take a deep breath, watch a cat video, and relax. Maybe you owe more money now than when you graduated from college, or maybe student loan forgiveness will sink you in a mire of tax debt. The whole system could get blown to smithereens when the federal budget is approved. You might not have a lot of control over these circumstances and events, but neither are you impotent to act.
It’s time to look into refinancing your student loan debt with a reputable organization like Education Loan Finance. It’s not too late to take advantage of low interest rates and other benefits that could save you thousands of dollars over your current student loan situation. If you’re understandably nervous about the apparent unreliability and shaky future of the system you’ve placed your trust in, consolidation and refinancing could be just the ticket to regain control of your own financial future.