Is it time to limit student loan forgiveness?
Here’s what you need to know.
In a new editorial, Bloomberg’s editorial board writes that student loan forgiveness should be reimagined: fewer student loans cancelled, fewer student loan borrowers who qualify, and better targeting to attract public servants where jobs are in demand. Biden announced major changes to student loan forgiveness earlier this month, including $4.5 billion of student loan cancellation, which will helps more student loans borrowers to get student loan relief. The goal of these major changes was to fix a broken student loan forgiveness program that denied 98% of student loan borrowers from getting student loan cancellation they were supposedly promised. However, as the editorial board notes, these fixes to public service loan forgiveness aren’t the best way to encourage more student loan borrowers to pursue a career in public service.
Student loan forgiveness: major changes
Student loan borrowers have been rejected for public service loan forgiveness for many reasons, including ineligible student loans, missing or incomplete paperwork, ineligible student loan payments, ineligible student loan repayment plans, and ineligible work experience, among other reasons. To correct these errors and get more student loan borrowers to qualify for student loan forgiveness, Biden and the U.S. Department of Education announced the following changes, among others:
- count student loan payments toward student loan forgiveness, even if made before student loan consolidation;
- make FFELP Loans and Perkins Loans eligible for student loan cancellation;
- get student loan forgiveness even if you made student loan payments under the wrong student loan repayment plan;
- be eligible for student loan forgiveness even if you made late student loan payments or incomplete student loan payments; and
- allow active duty members of the military to “count” payments even if enrolled in student loan forbearance or student loan deferment.
(Here’s who qualifies for student loan forgiveness right now). Overall, the Education Department relaxed the requirements for student loan borrowers to qualify for Public Service Loan Forgiveness, which requires 120 qualified monthly student loan payments before a student loan borrower can get federal student loan cancellation. (Here are 17 ways Biden can fix student loan forgiveness). With these new changes, student loan borrowers will have one year to get “credit” for these payments toward student loan forgiveness. While these fixes undoubtedly help increase access to student loan forgiveness, the editorial board recommends that the entire Public Service Loan Forgiveness be revisited. Here are the changes that the board proposes:
1. Unlimited student loan forgiveness is a mistake
Currently, a student loan borrower who qualifies for public service loan forgiveness can get unlimited federal student loan forgiveness. That unlimited student loan forgiveness comes after 120 monthly student loan payments, which can happen as soon as 10 years. The is 10 to 15 years sooner than income-driven repayment plans, which offer student loan forgiveness after 20 years (undergraduate student loans) and 25 years (graduate student loans). In comparison to public service loan forgiveness, the wide-scale student loan forgiveness that Sen. Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) proposed isn’t unlimited student loan cancellation; it’s capped at $50,000. (This could be even bigger than student loan cancellation). The editorial board writes that unlimited student loan forgiveness encourages student loan borrowers to enroll in expensive degree programs and doesn’t incent colleges and universities to lower tuition. With Republicans focused on limiting federal spending (for example, Biden’s Build Back Better plan), it’s possible that Congress could seek to limit student loan forgiveness if Republicans gain control of Congress following the mid-term elections next year. If limiting student loan forgiveness sounds like a Republican proposal, Biden too has supported capping student loan forgiveness at $50,000 a year. (Biden has cancelled $11.5 billion of student loans, but here’s what it means for student loan forgiveness). As a presidential candidate, Biden proposed changing public service loan forgiveness to give public servants $10,000 a year for five years, up to $50,000 of student loan cancellation. This is different than Biden’s plan for wide-scale student loan cancellation, which would be capped at $10,000.
2. Student loan forgiveness should be limited to public servants
The editorial board argues that public service loan forgiveness, like its name implies, should be limited to public servants only. (These student loan borrowers won’t qualify for student loan forgiveness). Currently, student loan borrowers who complete the requirements of the program and work full-time for a qualified public service or non-profit employer can get student loan forgiveness. As the editorial board notes, this wide definition means that student loan borrowers who work for advocacy groups, think tanks, universities and foundations also can qualify for public service student loan forgiveness. While the editorial board calls these professions “worthy,” the editorial board doesn’t believe these student loan borrowers should get taxpayer-funded subsidies like “teachers, firefighters and members of the military” through the program.
3. Student loan forgiveness should be limited to college degrees
The editorial board writes that public service loan forgiveness shouldn’t be available for “most graduate degrees.” The editorial board doesn’t list which graduate degrees should be eligible. For example, would law degrees (prosecutors, public defenders) or medical degrees (government-employed physicians) be eligible for student loan forgiveness? (Student loan forgiveness isn’t available to everyone, but this plan is available now). Currently, a student loan borrower can get federal student loan cancellation for both college and graduate degrees. Graduate school debt comprises almost 50% of the $1.7 trillion of outstanding student loan debt. That said, it’s also possible that the editorial board intended to exclude professional degrees. There have been other recommendations to focus on colleges degrees for student loan forgiveness and to exclude graduate degrees or professional degrees, which are associated with higher earnings for student loan borrowers. The editorial board notes that “qualifying jobs” should “be limited to where labor is most in demand — such as teaching, nursing and law enforcement.” (How to get approved for student loan forgiveness).
Student loans: next steps
While the fixes to student loan forgiveness will help more student loan borrowers get student loan forgiveness, it’s possible that more changes may follow. No matter where you stand on student loan forgiveness, the editorial board raises important questions about the future of student loans. As legislators and policymakers consider student loan forgiveness, how should they balance student loan relief for student loan borrowers with protecting taxpayers from more federal spending? It’s a philosophical question with deep, practical implications. The next step for your student loans is to prepare for the end of student loan relief due to the Covid-19 pandemic on January 31, 2022. Thereafter, you will start making federal student loan payments again with your regular interest rate. Don’t wait a few more months — assess all your options for student loan repayment now.
Make sure you understand these popular ways to save money with your student loans: