Changes To Public Service Loan Forgiveness

There are changes brewing for Public Service Loan Forgiveness. "The president’s fiscal year 2015 budget includes a number of the reforms, such as a new loan forgiveness threshold for borrowers with high levels of debt and a cap on Public Sector Loan Forgiveness. It closes a loophole that allowed married borrowers to exclude their spouse’s income from the IBR calculation. And it uses the savings generated by the proposals to expand access to IBR."

The big question is whether these changes will apply to existing borrowers or future borrowers.

"The department of education seems to suggest that under the president’s budget proposal, the PSLF cap would only apply to new borrowers."

A wise soul decided to ask the Department of Education directly:

"Will the Proposed PSLF cap ($57,500) only apply to New Borrowers after July 1, 2015 (and those who opt into the new program)? Or to all borrowers? Or all borrowers that use PAYE as a repayment plan ?
This has been an issue of great concern for current borrowers and official clarification would be helpful. See [AskHeatherJarvis] [Boston Student Loan Lawyer Adam Minsky] and Comments in [New America Foundation]. Also, PSLF is a separate statute from PAYE, so how would ED/Congress change PSLF to only effect future PAYE borrowers? Would it create a new time period for PSLF or create new language in the PAYE program for a new PSLF program? If the PSLF statute (20 USC 1087e(m)) is changed to include the cap (without clarification), then it would appear to apply to all borrowers. Any guidance on this would help."

The Education Department's Answer:
"For all new borrowers (with minor exceptions) starting with the 2015-2016 academic year the new expanded PAYE program will be the only income-based repayment plan available so the cap applies. For any other existing borrowers they retain the income-based repayment plan in their promissory note but if they choose to switch to the new expanded PAYE program, they have to accept all the conditions including the caps."

While the language in the response is a bit vague, the [Education] Department seems to say the PSLF “cap” would only apply if existing borrowers switch from their current IBR plan to the new, extended PAYE plan.

The game will change immensely for those of us taking advantage of PSLF in its current form. I know that I have made major life/financial decisions in reliance on the current form of PSLF, and I hope that any changes that take place will be limited to new borrowers who are on notice of these changes.

This at at time when graduate school financing through student loans is rising at a rate unseen.

The United States needs an educated workforce, and if graduate school is effectively cut off from most of the population (only those who can afford to pay out of pocket get to go), then we will be doing a major disservice to our future as a global competitor.

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