It’s safe to say that the Public Service Loan Forgiveness (PSLF) program for federal student loans has run into a number of obstacles over the last few years. In order to qualify for PSLF, borrowers must currently make 120 monthly payments while enrolled in an income-driven repayment plan and working for a qualified nonprofit organization. The balance of the loan is then forgiven after the PSLF application is approved. To this point, just over one percent of PSLF applications have been forgiven, although I expect that rate to increase over time as more borrowers fix paperwork issues and/or make more payments.
Setting a whole host of logistical and implementation issues aside, there are two other problems with the current PSLF program. The first is that requiring borrowers to make 120 payments while working for a qualified nonprofit can severely restrict someone’s career trajectory, as borrowers may feel trapped in their current job until their PSLF application is approved. This can also stop people from going into public service because the promise of forgiveness is too far away to be real.
The second problem is that the average amount forgiven is sizable as benefits disproportionately go to people with expensive graduate degrees. The average balance forgiven under PSLF is just over $63,000, and the average outstanding balance of people who have indicated interest in PSLF by filling out an employment certification form is nearly $90,000. Having this type of loan forgiveness increases the risk of a Republican Congress or White House killing the program entirely, as President Trump has repeatedly proposed.
One potential way to address both of these concerns is to make PSLF a monthly benefit instead of giving borrowers a lottery ticket for potentially massive loan forgiveness after ten years. I have had the pleasure of working with the Bipartisan Policy Center over the last couple of years on higher ed policy issues, and last week they released a set of 45 bipartisan proposals for Higher Education Act reauthorization. One of the proposals from their blue-ribbon panel was to turn PSLF into a benefit of $300 that borrowers would automatically receive each month for up to five years of working in public service. This would significantly limit the overall benefit that borrowers receive (a total of $18,000), but it would help borrowers manage their principal upfront while also directing more resources to students with less debt (and likely less income).
If Higher Education Act reauthorization is to move forward in Washington—and that is an enormous “if” at this point—the idea of frontloading PSLF benefits deserves serious discussion. The monthly/annual amount forgiven and the number of years of forgiveness are certainly up for debate, but the key idea of making benefits immediately tangible while limiting back-end forgiveness makes a lot of sense.