The Biden Administration announced that it will be reforming Public Service Loan Forgiveness (PSLF) by implementing a variety of data-matching automatic loan forgiveness options and allowing a waiver to count certain payments. Read the release here.
Only about 2% to 3% of borrowers who have applied for PSLF have succeeded in having their student loans discharged, according to U.S. Department of Education statistics. And the U.S. Government Accountability Office (GAO) has identified many problems with the PSLF program.
What PSLF reforms can be implemented through executive action? And which reforms to the PSLF program can be implemented by issuing new regulations? Here's what you need to know.
Biden Administration PSLF Reforms
The Biden Administration is launching three major PSLF reforms to make the process easier for borrowers. These include:
A limited PSLF waiver that allows all payments by student borrowers to count toward PSLF, regardless of loan program or payment plan. This waiver will allow student borrowers to count all payments made on loans from the Federal Family Education Loan (FFEL) Program, Perkins Loan Program, or other non-Direct Loan programs to count as long as a PSLF Employment Certifciation Form is submitted AND the loans are consolidated into Direct Loans before October 31, 2022.
Automatically providing credit toward PSLF for military service members and federal employees using federal data matches. We've discussed in-depth about using federal data matching to streamline automatic student loan forgiveness here.
Reviewing denied PSLF applications for errors and giving borrowers the ability to have their PSLF determinations reconsidered. This appears to be an additional layer of the student loan ombudsman to resolve PSLF issues.
Current PSLF Statutory And Regulatory Restrictions
Public Service Loan Forgiveness was enacted during the Bush Administration by the College Cost Reduction and Access Act of 2007 (P.L. 110-84). The statutory language, at 20 USC 1087e(m)(1) states that the borrow must:
- Make “120 monthly payments on the eligible Federal Direct Loan” to qualify for loan forgiveness.
- Have been “Employed in a public service job during the period in which the borrower makes each of the 120 payments.”
The loan forgiveness is per loan, not per borrower. This prevents counting payments made prior to a loan being consolidated. The statutory language also limits eligible loans to Direct Loans. Loans in the Federal Family Education Loan Program (FFELP) are not eligible.
The original PSLF rules dictate that eligible payments are those made under an income-driven repayment plan or the standard repayment plan. Also, suspended payments (such as time spent in an economic hardship deferment or forbearance) don't not count toward loan forgiveness. However, there are exceptions to both of these rules.
During the pandemic, the payment pause and interest waiver has counted toward PSLF, provided that the borrower is working full-time for a qualifying public employer. And Congress later created the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) program, which allows borrowers to have made payments under the graduated and extended repayment plans under certain circumstances.
What PSLF Reforms Can Be Made Through Executive Action?
The regulations, which appear at 34 CFR 685.219 largely mirror the statute detailed above. Nevertheless, there are steps the Biden Administration can take to reform the PSLF program by issuing an executive order or creating new regulations.
Some borrowers have said that one or more of their eligible PSLF payments were not counted due to government red tape and bureaucracy. Common complaints include:
- Eligible payments not being counted because they were made late or on a bi-weekly basis.
- Automatic payments not being counted because they were rounded down instead of up to the nearest penny.
- Payment history information not being transferred correctly when the borrower's account it moved from one federal loan servicer to another.
- The timing of payments, especially at the start of qualifying employment, causing payments to not count toward forgiveness.
All of these problems listed above can be addressed through executive action.
The U.S. Department of Education can also issue an executive order to allow months spent on active duty in the U.S. Armed Forces to count toward PSLF (based on authority of the Heroes Act of 2003). And just like with the COVID-19 forbearance, these months can count even if no payments were made.
What PSLF Changes Can Be Made Through New Regulations?
Some PSLF reforms cannot be implemented through executive action but must instead be made through new regulations. The U.S. Department of Education can issue new regulations using negotiated rulemaking (NegReg).
There is a pending NegReg that began in October 2021 that could be used to consider regulatory changes. This process typically takes a year. However, there are two ways the U.S. Department of Education could shortcut the process.
- Issue an interim final rule: This eliminates the public comment period. The use of interim final rules, however, is limited to emergency situations.
- Implement the changes early: The master calendar provisions specify that a final rule published by November 1 becomes effective the following July 1. However, The U.S. Department of Education has the discretion to allow a final rule to be implemented earlier.
But can the U.S. Department of Education issue new regulations that conflict with the plain language of the statute and intent of Congress? Technically, they can’t. But the U.S. Department of Education can issue new regulations that vary from the statute.
Congress, meanwhile can use the Congressional Review Act to overturn newly issued regulations within 60 legislative days. If Congress doesn't pass a joint resolution that overturns the regulations, the regulations go into effect.
Overturning new department-issued regulations is unlikely to occur when Congress is controlled by the same party as the President. Both Democratic and Republican administrators have exploited this loophole.
What Types Of New PSLF Regulations Could The U.S. Department Of Education Issue?
The U.S. Department of Education could use the mechanism described above to issue new regulations that count payments made by eligible FEEL student loan borrowers under income-based repayment (IBR). If such regulations were not overturned by Congress, they would allow payments made in the FFEL program to count toward loan forgiveness.
This mechanism could also be used to allow payments made prior to loan consolidation and during an economic hardship deferment to count toward loan forgiveness.
The U.S. Department of Education could also expand the definition of public service to include nurses and doctors and other people who worked at the front lines of the pandemic. Currently, healthcare workers can only qualify for PSLF if they work for government or non-profit hospitals and clinics.
Are There Other Ways That PSLF Reforms Could Be Blocked?
Aside from the Congressional Review Act, there is one other way that detractors could potentially block PSLF reforms made through executive action or new regulations. They could bring a lawsuit against the U.S. Department of Education under the Administrative Procedures Act (APA) on the grounds that the changes are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."
However, an APA lawsuit is unlikely as it might be the equivalent of political suicide given that a ruling would likely occur just before the 2022 mid-term elections. Even if a party wins the lawsuit, they may lose the election. This is especially true to the extent that a blocked regulation would hurt members of the U.S. Armed Forces.
Mark Kantrowitz is an expert on student financial aid, scholarships, 529 plans, and student loans. He has been quoted in more than 10,000 newspaper and magazine articles about college admissions and financial aid. Mark has written for the New York Times, Wall Street Journal, Washington Post, Reuters, U.S. News & World Report, MarketWatch, Money Magazine, Forbes, Newsweek, and Time. You can find his work on Student Aid Policy here.
Mark is the author of five bestselling books about scholarships and financial aid and holds seven patents. Mark serves on the editorial board of the Journal of Student Financial Aid, the editorial advisory board of Bottom Line/Personal, and is a member of the board of trustees of the Center for Excellence in Education. He previously served as a member of the board of directors of the National Scholarship Providers Association. Mark has two Bachelor’s degrees in mathematics and philosophy from the Massachusetts Institute of Technology (MIT) and a Master’s degree in computer science from Carnegie Mellon University (CMU).