Government May Ax Popular Loan Forgiveness Program

Written by: FT Staff

Student Loan Forgiveness Program (shutterstock)

The Administration is Considering Axing the Public Service Loan Forgiveness Program

Initiated in 2007 by then President George W. Bush, the Public Service Loan Forgiveness Program provides an incentive for Americans to work in government and nonprofit jobs. The program forgives student loan debt after ten years. The first round of students should qualify to wipe their student loan debt this coming fall. That option may not be available for future students as President Donald Trump’s 2018 budget recommends eliminating the PSLF program.

Filling Low-Paying Jobs

More than half a million college graduates are relying on the PSLF program to forgive their student loan debt. “The public service program is phenomenal for attracting quality workers to low-paying jobs,” according to Joe D’Angelo, partner with Carl Marks Advisors in New York City. Without the PSLF program it could be difficult to attract top-tier talent to low-paying government and non-profit jobs.

To earn PSLF loan forgiveness, you must not only find the right job, but also make a long-term commitment. Participants must make timely payments over the course of ten years to qualify for student loan forgiveness under the PSLF program.

Current Borrowers

The government has yet to make a decision on what would happen to borrowers in the middle of their ten-year service. The Department of Education has said current workers would be grandfathered into the program, and that the new budget proposal would affect those borrowers taking out loans after July 1, 2018 if enacted.

However, a motion filed by the Department of Education in a lawsuit brought forth by the American Bar Association seams to declare the opposite. In response to the suit, the department said confirmation notices sent to borrowers are “interim, non-binding, individualized determinations.” Meaning, that borrowers who believe they are working in qualifying positions could later find that they are not actually eligible for loan forgiveness.

Economic Implications

While the economic implications are unclear, there’s no denying the elimination of loan forgiveness would compound the nation’s student loan crisis. President of Government & Civil Employee Services in Indiana, Pennsylvania Galen Bargerstock compares the country’s ballooning student debt to the housing bubble that preceded the Great Recession. Eliminating student debt forgiveness could have far-reaching effects on the nation’s economy if young Americans’ purchasing power is impeded.

Waiting Game

For now, borrowers are playing a waiting game – sitting in a pending queue until the president’s budget proposal is implemented. Borrowers should continue to make student loan payments and complete their PSLF program paperwork as they’ve always done until a decision is made. Current students and recent grads should consider alternative career paths, if only pursuing a career in government for the prospect of loan forgiveness.