Don’t Panic About Proposed Public Service Loan Forgiveness Elimination

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Executive Summary

Public Service Loan Forgiveness (PSLF) is a specific student loan payment strategy for individuals with high student loan debt who work for the government or a registered non-profit.  This includes government employees, employees of traditional non-profit entities, teachers, and even doctors and nurses who work at teaching hospitals.  Under this program, if you make 120 student loan payments on certain types of loans loans under a qualifying repayment plan, the remaining balance is forgiven after 120 payments.

Originally created under the Bush administration, there have been many rumored changes to PSLF program over the years.  In 2012, the Obama administration proposed putting some caps on the loan amounts that can be forgiven.  And recently, a proposed internal budget memo was leaked indicating that President Trump’s Department of Education is proposing eliminating the program all together.

In this video, I discuss the proposed threats to the PSLF program, and why I don’t think there’s any need to panic about these changes yet.  Ultimately, I believe that the chance that this proposal could become law is incredibly low both in its current form and in the current legislative climate in Washington DC.  And even if it does become law, it almost definitely would need to apply to future borrowers only.  If you’ve already taken out student loans and are counting on PSLF, you very likely have it in writing in your promissory notes that your loan servicer will honor PSLF in the first place!  Which would create massive legal challenges if the government were to revoke that at this point.

Nevertheless, it’s absolutely critical that you pay careful attention to the PSLF fine print if you are counting on this forgiveness.  To make sure you qualify for the program, you need to do a very detailed loan-level review to make sure your loans qualify for the program in the first place, since many of them don’t.  You also need to make sure your loans are on a qualifying repayment plan to be eligible for PSLF.  Finally, you need to submit an Employment Certification Form annually to your loan provider.  Ultimately, remember, this is on you to make sure you qualify!  For more information on qualifying for PSLF, click here and download my free student loan guide.

(Bill’s Note: This video, and the lightly edited transcription below, was originally released as a Facebook Live broadcast on May 18, 2017. If you want to participate in our next Facebook Live session, head to our Facebook page, hit “like”, and you’ll get the announcement the next time we go live.  Most of the content comes from questions submitted by my readers and viewers, so if you have a topic you’d like to hear more about, send a message to our Facebook page and we will get back to you as soon as we can!

Finally, click here to grab a copy of the FREE 30 page student loan guide mentioned in this video to learn more about how to qualify for Public Sector Loan Forgiveness.]

Pacesetter Planning Facebook Live Transcript

Welcome, everyone!

I was in the process of filming some things that will be going live at pacesetterplanning.com later today when I noticed the news that came out yesterday about the potential changes to the Public Sector Loan Forgiveness (PSLF) program by the Trump administration.  Particularly, the proposed elimination of the Public Sector Loan Forgiveness program.  I wanted to share a few quick thoughts on this.

Trump Administration Proposes Elimination of Public Sector Loan Forgiveness

In case you missed the news, the Department of Education’s internal budget memo was leaked yesterday to the Washington Post.  And it looks like that this proposed budget will essentially eliminate PSLF.  For those of you who don’t know, this is a specific student loan program that allows people who work for non-profits, or the government, or even some hospitals to be eligible to have the balance of their student loans forgiven after 10 years.  And, essentially, it looks like the Trump administration is going to try to eliminate this program.

Interestingly, that’s not the only thing that was actually proposed in this document.  They also proposed some changes to the Income Based Repayment plans that are available as well.  Those [repayment plans] are typically for people who are either pursuing loan forgiveness or those who don’t have the necessary monthly income to pay their “standard” student loan payment every month.  Under these programs, you have the capability to peg your monthly student loan payments as a percentage of your current income.

The Washington Post leaked that the Trump administration will be changing some of the specific percentages of your monthly income that would make you eligible for this program, as well as the length of some of these income based repayment programs.

There’s nothing new in that particular proposal.  Actually, I wrote on the blog back the week that Trump was elected about that specific change in policy.  It’s something that he campaigned on.  And, I wrote about it on CNBC’s website as well a few months ago. So, there’s nothing new there.  The real news is that this Public Sector Loan Forgiveness program may end up being eliminated.

This isn’t Something to Panic About… Yet

There’s been a lot of panic about that, and justifiably so at first glance, but I wouldn’t panic about this yet. And there’s a few reasons for that.

This Proposal Needs to Go through the Standard Legislative Process to Become Law.  Good Luck with That

First and foremost is that this is not an actual budget that was released.  This is not the law of the land.  If you go back to your 8th grade social studies classes (Schoolhouse Rock, and all that good stuff!), any budget bill has to be originated in the House of Representatives, passed through the Senate, and then signed into law by the President.  So just because the Department of Education has released this as their blueprint or vision for the future, doesn’t mean that it’s actually policy. And in fact, I think it’s probably unlikely that, in its current form, it will ever become policy. I’m not a legal expert, obviously I’m not in government, but based on what I’m seeing right now, I don’t see how that the elimination of PSLF really could possibly be eliminated as they’re proposing.  At least in its current form.

Interestingly, the Obama administration a few years ago actually did try to make changes to the program.  Rather than allowing your entire loan balance to be forgiven in 10 years, they were proposing to put some caps on it as a cost savings device, and that didn’t get through.  So, if that didn’t happen a couple of years ago under the Obama administration, particularly under the legislative climate that we’re in today, I just don’t see this actually happening right now.  Which is good.

This is Unlikely to Affect Borrowers who Already Have Student Loans

And even if it does, there’s a second piece of good news for all of you out there who took out these loans, are in public sector jobs, and are counting on this loan forgiveness.  And that is, that, quite frankly, it is against all precedent in student loan policy that, if this change were to go into effect, it would affect current borrowers.

Going back through all of the different changes in student loan policy over the past 15-20 years, I can’t think of a single one off the top of my head where people who already had loans originated now were affected by the changes. Typically, when these changes go into effect, they are for new borrowers. The good news, is that if you have loans in existence right now and are on track for loan forgiveness, I would just be shocked based on the precedents that have been set and the way these things work, if this were to actually affect you.

In fact, I’ll even take it a step further. For many of you, if you go back to the promissory notes that you signed when you were 18 or 19 years old and took these loans out (you probably didn’t even understand half the stuff because they do a terrible job walking you through it…), the PSLF program is often enshrined in those documents.  So literally, for them to eliminate this program right now, in my opinion (and some of the legal experts I’ve followed since this has come out), I don’t see how they could legally do this.  And in fact, I think this would create a lot of legal programs, if they were to eliminate the program for people who have already taken out these loans and are on track for loan forgiveness.

I think it’s more likely that they might eliminate the program for future people, which certainly could be a problem for folks, but it’s certainly not at the crisis magnitude that cancelling it for people who have all this debt and are really counting on this program being around at this point.

So, I think that a lot of the panic I’m seeing, while it might be justified at face value, really doesn’t justify panic just yet, to be honest.  Because first of all, it’s not on the books. It’s not even close to being on the books at this point. And I think that it would create so many legal headaches for the government to cancel this program that they’ve promised people in writing over the past 10 years, that I just don’t see it happening.

But, You Still Need to Pay Attention to PSLF

That being said, if this is something that you’re counting on, there are a few critical things that you need to do.  And that’s really why I wanted to talk about this today while this topic is in the news.  While I would continue going forward expecting this forgiveness program to be in place until we see anything different (and if we do, we’ll talk about it), if you’re on track for it now, you need to be doing a few things to make sure you do qualify.

Part of the reason that people are so scared about this is because, well, let me ask you- if I was to ask you how many people have qualified for PSLF over the past several years… the answer would be zero.  Because, the law was passed in October 2007.  So, it hasn’t even been ten years since it went into effect.  So, nobody has been eligible to qualify yet. That’s going to be changing later this year and early next year [Note: the application for forgiveness was released in early September 2017, as predicted in this video].  The very first group of people who are eligible for this program are really reaching the end now. But because it’s never been actually implemented, there’s a little bit of uncertainty here.

And so, what I wanted to do was talk through some of the things that, driven by this uncertainty, you should be doing to make sure you’re being taken care of.

You Need to Make Sure Your Loans Qualify for PSLF Under the Current Law

First and foremost, you need to make sure you actually qualify for the program.  We know that you need to hold a public sector/nonprofit type job, but you also need to make sure that your individual student loans qualify.  Because, one of the biggest misconceptions and mistakes that I’ve seen since I founded Pacesetter Planning is people who think they’re on track for PSLF and don’t even qualify for forgiveness in the first place because their particular student loans don’t qualify.

Over the past ten years, student loan policy regulations have changed every few years.  So, you really need to do a deep, loan-level analysis to make sure that you actually qualify.

I’ve made it as easy as I can for you to do that.  Click here to download a free student loan guide that walks you through the steps you need to take. Everything you need to make sure that you can qualify for this program under the current law as it exists, is detailed in that guide.  So, I highly encourage you to download that guide (it’s free, no cost for this!) and do the analysis that is listed there to make sure that your student loans qualify for this program. Because if they don’t, that’s going to be a whole other conversation.

You Need to Make Sure You’re on a Qualifying Repayment Plan

Second of all, this is a little less common of a problem, but make sure you’re on a qualifying repayment plan. If you’re on a standard 10-year repayment plan, it’s very likely that you’ll have paid off your loans by the time 10 years is over. So, double check with your loan servicer what type of repayment plan you’re on, and specifically make sure that this payment plan makes you eligible for PSLF.

This is particularly an issue, I’ve found, with people who have graduated medical school, who are residents but aren’t yet “full doctors”. For those of you who don’t know much about the medical industry, people who graduate medical school typically have over $250,000 in student loan debt, then they go into three (or four, or five, or six or seven) year residency and fellowship programs, where they make a fraction of what they’ll make as full doctors.  Because having a nonprofit hospitals jobs would qualify for PSLF, what I see happen a lot is people who defer their loans while they don’t have a big income during residency, but count that, in their head at least, as counting toward that ten year PSLF qualification.

Just to be clear, that’s not going to work. Because technically, it’s not ten years that qualifies you for PSLF, its 120 payments.  You need to make 120 payments on your student loans in order to qualify for this program.  So, it’s really not enough to go into residency, put your loans on deferment, and start counting the time.  Because if you’re not actually making the payment, it’s not going to count for you. So again, make sure that you know if your payment plan is going to qualify you, and that every payment you make is going to count toward that 10 year (120 payment) goal.

You Need to File an Employment Certification Form Annually

And finally, last thing, unfortunately this is on you to make sure you qualify for this.  Your student loan servicer and the government are certainly not going to be looking out for you to make sure that you’re doing what you need to do in order to qualify.

So, the last piece I recommend is that for people who are in qualifying jobs (working for a nonprofit or the government or things like that), you need to be filling out an employment certification form.  Every year. And submitting it to your student loan processor.  It basically shows that you hold a job that will qualify you, for all the payments you are making this year, toward those 120 payments that would qualify you for PSLF.  If you don’t have that form, click here or send a Facebook message to the Pacesetter Planning Facebook page, and I will send you a copy of that form. But you absolutely need to be filling it out every year.

The Government Accountability Office (GAO) released a study recently that said that 4 million people are “qualifying” for PSLF, but less than 1/8 of them are actually filling out that form.  I think that’s a huge mistake.  And other than having loans that don’t qualify in the first place, which I already talked about, not filling out that form and proving to the government and your student loan servicer every year that you qualify, is the number one mistake I see people make that could potentially lead to problems for them down the road.  So, definitely make sure you do that. I have no issues whatsoever with sending you this form if you send the Pacesetter Planning Facebook page a message.  I’ll make sure we get the form to you.

Conclusion: Worry About Complying with the Current Laws around PSLF, Not About Proposed Future Changes

Anyway, that’s about it.  Like I said, potential scary headlines about the future of this program.  We don’t really know what’s going to happen yet.  But based on the reasons that I detailed, I don’t think there’s any reason to panic yet.  I think it’s definitely something to keep an eye on. But, like I said, this is not law, it’s not part of the budget at all (in fact, we’re many, many months from even getting to that point). I don’t think this is likely, in fact it’s been tried in some ways before and it hasn’t gone through. Particularly with the climate in Washington DC right now, I just don’t see it happening. And more importantly, it’s against all precedent in student loan policy to affect current borrowers. If they were to eliminate the program, I think it’s much more likely that it would be eliminated for people who are taking out loans in the future, not people who are already on track.

But.

You need to make sure, if you’re counting on PSLF, you have to make sure you’re doing everything you can to qualify. You need to make sure your student loans qualify in the first place, you need to make sure you’re on the right repayment plan for those loans, and you need to filing an Employment Certifiction Form indicating that you work for a nonprofit or government agency, every year, for ten years to show that you’re qualified.

Again, if you have any questions about this, I highly encourage you to either send me a Facebook message on the Pacesetter Planning business page, or download that free student loan guide.  There’s a ton of detail in it and it’s going to give you just about everything you need to know.  Thanks for taking the time today- have a good day!

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