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The PSLF Waiver and Student Loan Forgiveness

Here's an explanation from our expert on the newest plans for student loan forgiveness.
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Mer: For many Americans, student loan debt and trying to repay it has been an issue for a while. However, the Biden-Harris Administration has announced a new plan to forgive student loans. Here to talk more about this is Becca Craig from Buckingham Strategic Wealth. Welcome Becca.

Becca: Thanks for having me today. Exciting times.

Mer: Yes. Good to see you. This is a topic that I'm definitely very interested in as a student who's taking out student loans and stuff like that. So before we get into this new plan, earlier on in the year, Biden proposed another student loan forgiveness initiative, which is the limited PSLF waiver. That deadline is coming up in October, I believe. So can we talk about what PSLF is and why there is this temporary expansion?

Becca: Absolutely. So in the past 365 days, there's been three major overhauls to build a joint effort between the Biden-Harris Administration and the Department of Education to make more efficient pathways to forgiveness. This is both through public service loan forgiveness, as well as the income-driven repayment plan forgiveness strategies, more on that later.

So backing up, right around this time last year, the Biden Administration, with the Department of Education, announced the Public Service Loan Forgiveness waiver. For many years, the program, which was actually a lame duck initiative in the Bush Administration back in 2007-2008 when the public service loan forgiveness program was originally initiated and created. This is, in its very essence, after 10 years of either continuous or non continuous public service—so working for a qualified employer—using at the time a qualified repayment plan—or at the time qualified loans. After 120 payments towards your student loans while working for certain employers, using set repayment plans under those certain loans, then your loans would be forgiven or canceled.

Over the past 15 years there's been various private and public government reports of the inefficiencies and roadblocks that borrowers have experienced in receiving forgiveness. So most recently, by the Government Accountability Office, there was one report that said out of all the different individuals that applied for public service loan forgiveness, only 1% received forgiveness. The large majority of individuals that had or would have qualified either used repayment plans that weren't income driven repayment, they were paying on FFP loans or other types of non-qualifying federal loans, or they just were confused with how to submit the employer certification form. So this was essentially at its very core, a way for public servants and those that are in government, education, healthcare related fields to be able to alleviate the emotional and financial burden of student loan debt and repayment. Almost 25% of borrowers qualify for Public Service Loan Forgiveness based on their current employment, so a large sector of the American workforce. However, it got really complex due to all these different aspects and complications and complexities.

So back in October 2021, the Biden-Harris Administration announced the Public Service Loan Forgiveness waiver. This basically said, if you would have otherwise qualified for PSLF but did not receive it because you were not using a qualified repayment plan, your qualified loan, and submit qualifying forms, we're waiving those requirements for you if you submit the employment certification form and upload that to your servicer for us to recount and re-qualify your loans. The only stipulation was for those that have FFP loans or Perkins loans, those have to be consolidated into direct loans first, in order to then have all the other qualifications waived, so to speak. So over the past year, those of us that are in the student loan planning community have been very excited and urging borrowers to apply and make sure that their loans are qualifying, that they need to consolidate, and to really utilize this opportunity. I've had the honor and the privilege of working with dozens of borrowers to receive over millions of dollars and forgiveness and a lot of my colleagues in the industry as well, because it's there. We should be taking advantage of the waiver. The only qualification is that the waiver, or the employment certification form, needs to be submitted and received by October 31 of this year to MOHELA, which as of the summer is the new administrator for the Public Service Loan Forgiveness Program. It's not FedLoan anymore. So big push for that.

Mer: So how do you go about applying for this waiver?

Becca: Great question. So whether it's through the Federal Student Aid office, as well as the Department of Education, they have created—and I enjoy the name—the PSLF  Ninja. It's a tool on their website that you can log into your FSA account, and using that PSLF Ninja they’ll ask you questions of “Do you have xy loans?” or “Are you currently on an income driven repayment plan?” Based on that flowchart of information that borrowers submit, they will then tell you the exact next steps to be able to apply. So for those individuals that knew that they weren’t going to qualify for a litany of reasons, usually if you still have direct loans and you work for a qualified employer or have worked for a qualified employer for any amount of time, it would be in someone's best interest to at least apply for the waiver to see how many qualified payments you actually receive under it. There's no requirement to continue income driven repayment plans. There's no requirement that you have to continue pursuing the Public Service Loan Forgiveness Program. However, by going to the PSLF Ninja, that will get borrowers a really direct and specific route to their application, because it's going to come down to what have you done so far and what do we still need from you. So I would urge all borrowers to go to the website and to figure out their next steps.

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Mer: Definitely. So that's the PSLF waiver. So what is this new student loan plan that's been introduced and how is it different from what we just talked about?

Becca: This was about two weeks ago, but time has been crazy since this is arguably one of the most landmark successes of the Biden-Harris Administration. Not only are they delivering on the promise to cancel student loan debt, but also they’re extending the freeze and creating a new income driven repayment plan. So really, there's three parts to the new debt relief order of August 2022.

So the first part being is that the pandemic CARES Act student loan payment freeze above interest in principal payments, is going to be extended one final time, like this is it. I have said this and I've written articles for TheStreet saying, “this might be the last one,” but the seventh one is, going to be the last extension of the payment phrase until January 1st. This allows for the administration, the servicers, and borrowers to get organized on really what the future of debt repayment plans look like. That's, that's the first part.

The second part is student loan debt forgiveness/cancellation for borrowers based on their 2021 AGI. So for those individuals, as well as those that file head of household and married filing separately, if your adjusted gross income was under $125,000 in 2021, then you will receive $10,000 of forgiveness. If you also at any point during your education career received a Pell Grant, there's an additional $10,000 in forgiveness. So there’s a total of $20,000 for those filing in 2021. For those married filing jointly, if the joint income is less than $200,000 then they would qualify for that $10,000. If either one of them had a Pell Grant at any point, that borrower would receive an additional $10,000.

So third part, this is the gray area of we know what's been announced but there's not too much information. The student planning community is really excited and waiting for what this new income driven repayment plan looks like. Is it an offshoot of what was proposed in December? Is it something completely different? We know that only applies to undergraduate loans, but it's really meant to lessen the overall payment for those going for either public service loan forgiveness, or income driven repayment forgiveness.

So everyone benefits from the first part; the freeze is continued. The second part of the act really is geared towards those that were aiming towards full repayment because it's forgiving those lump sum amounts. Then the third piece is if you're going for public service loan forgiveness or income driven repayment forgiveness, this might be a more viable option for those borrowers that maybe have a smaller amount of debt overall or undergraduate debt. It's really aimed towards those lower and middle income earners that are seeking relief, as opposed to “I need to pay this off, but I don't know how I'm going to do that with my monthly income flow.”

Mer: Thank you so much for that. So one question that I've seen a lot of people ask is that perhaps they might have already put down some money towards their loans and it becomes less than that $10,000 amount. So does it happen to work retroactively to those who already paid? Do they get money back?

Becca: So this has been a really big conversation piece for borrowers, and the student loan specialist planning community at large, that we know for sure that in order to qualify for forgiveness the loans have to have originated before June 30th, 2022. So sometimes we get the question of “well, what if I just go take out loans and get it?” So that's not possible. Don't just take out loans. That's not really how it works. So no new loans will qualify for that forgiveness. The administration said that by the end of October, we will have a link that borrowers can click on and submit their request for forgiveness. Right now the government really only has an income picture of about 40-45% of borrowers because those borrowers aren't income driven repayment plans. The rest of borrowers that have direct public loans, they do not have because they might have been paying on an extended graduated or standard repayment plan. So those borrowers will need to take an additional step to receive cancellation and submit their income—either a tax return or approval to seek a tax return of 2021. That has been blatantly laid out on the administration page.

Because there has been no definitive statement/ruling/instructions from the Biden Administration at this point in regards to, well, if I paid off all my loans in May and I wouldn't have received this forgiveness, we don't know at this point. So I would encourage those borrowers—just as we’ll be doing the professional side too—before taking unilateral action to just just to pause until we have more clarity around that matter. Again, this is changing rapidly. There's been announcements and updates, and from a standpoint of Policy and Government it’s been very rapid. So by the time our conversation gets published, it might be completely different. As of the sixth of September, we don't have clear guidelines on the administration. So at this point it’s really just going to be a wait and see game for those borrowers that did pay off their loans in the given time period who would have otherwise qualified for cancellation?

Mer: So what about applying for this plan? Is there a way yet or has that been announced?

Becca: So for those individuals that have already submitted their income or they have an income picture based on their income driven repayment plans, the government already has their income numbers. However, for those individuals that have not submitted or if the government—technically the Department of Education—doesn't have their income amounts, a link will be made available on the Department of Education's website, they said sometime in October. That's all we know, at this point. There is a way that borrowers can actually go to the Department of Education's newsletters subscription page and subscribe to receive an alert when the link becomes available. So if there's one action that can be taken, it's just to sign up for the notification that the application for cancellation is available, and then wait for that link to become available to submit via request for cancellation.

Mer: Thank you. So we've covered a lot here. Is there anything else that you want to talk about? Anything about this plan or the PSLF waiver? Anything about that that we missed or that you want to go over again?

Becca: No, I think that's great to your point that there's so much there and there is a rapidly evolving arena of how do I navigate this program or this option or what does the future look like in general for that? It's really rapidly evolving and while there's taking steps to simplify, it’s still a complex area of financial planning. I would just encourage all borrowers to reach out. There are phenomenal student loan planners that are certified in a specific area. Reach out to one of the specialist communities or a specialist in the area or to partner with other individuals that really know the groundwork and the layout of student loan repayment. They don't need to go in alone. There's help available, a lot of pro bono, as well as paid services so that you don't feel like you're wading through all the complexity by yourself. A lot of times when it's overwhelming, as student loan debt is, it just feels heavy. To lighten that burden, just reach out and partner with others so that you can all create the best possible optimal plan going forward.

Mer: Definitely. Well, thank you so much, Becca, for your insight and for [answering] my questions.

Becca: It's good to meet you. Thanks so much.

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