According to the Virginia State Board of Higher Education, about 86,000 Virginians who owe about $3.3 billion in federal student loans are eligible to have those loans forgiven for their public service. Only one fraction of these borrowers have so far received debt relief under the Civil Service Loan Cancellation Program. But the federal government is is currently waiving certain prerequisites until October 31.
VPM News education reporter Megan Pauly spoke with Scott Kempstudent loan advocate for SCHEV, about the program.
The following has been edited for length and clarity.
Pauly: What are the conditions required for civil service loan forgiveness, and which of these conditions is the federal government waiving under this new program?
Kemp: The Public Service Loan Forgiveness Program has four main components. One you must have an eligible loan. And it’s a direct loan, a direct plus or direct consolidation loan. Second, you must work for an eligible employer. And that’s either government at the local, state, or federal level, or working for a nonprofit, a 501(c)(3). The third thing is that you need to be on the right kind of repayment plan. And it’s an income-driven repayment plan. And the fourth thing is that these three events must occur consecutively in 120 months.
What this waiver does is waiving all of the above requirements except to work for an eligible employer.
Why is the federal government doing this now?
The Civil Service Loan Scheme Waiver Scheme was created about 15 years ago with the purpose of encouraging people to enter the civil service. This gave those working in the civil service the option of paying less over time and then any loans remaining after 10 years or 120 months of qualifying employment would be forfeited.
As you have heard over the past two years, very few people have been approved for the program. People had the bad loans, the bad repayment plans, and they tried all these different solutions. In October last year they decided that for a year they were going to give people the option to review their accounts and waive all requirements except eligible employment and school deferment . And so what he’s done is go from borrowers who found out in grade 10 that they had the bad loans all the time, and they have to start over, to borrowers who automatically, instantly, get their canceled loans.
What is in-school deferment and how does this program view it differently than other deferments or abstentions?
Forbearance periods in the past didn’t count because you weren’t making a payment that month, and they basically forfeit those months and give borrowers credit for it. There are borrowers who had taken three months off, six months off here and there. But there was a lot of forbearance direction that was made by loan managers. When borrowers were having trouble making their payments and called the loan servicer and asked for help, the quick and easy conversation was to put someone on forbearance for three months or more. A more appropriate conversation should have been, let’s look at what happened to your income, look at what your income-based payment would be, and see if it’s manageable to keep the borrower on the repayment path.
And so, it’s just sort of a way to right some of the wrongs of the past without analyzing each case and looking at the call records to tell whether you’ve been pressured into forbearance or not. They just decided that this was a systemic enough problem. We’re going to be giving everyone a free pass for this and making those months count and hopefully moving forward without issues like this.
They don’t waive the deferment at school because it was a choice. When people return to school full-time, they have the option of deferring their school loans or continuing to repay their loan. So they thought people made a conscious choice at that time. Those months that the loan was on deferment at school won’t count, but those other months of forbearance they do.
Is it all abstention that they count?
Any type of forbearance under certain parameters. Any forbearance that happened before 2012, before they really knew loan servicers were doing it, they say, doesn’t matter. A month here, six months here, they automatically give credit for it. After 2012, if you’ve had a year or more of consecutive abstention, or about 36 months of cumulative abstention, they count that.
We’ve also heard from federal student aid officials that it’s just too hard for them to review and count.
If someone isn’t sure how many months their loan is forbearance, would you still encourage them to apply?
Our advice is that if you have worked for an eligible employer since October 2007 and have student loans, go ahead and complete the application. It doesn’t take long to complete. It’s a two-page request. The most difficult part is the second part, where you have to ask your employer to certify your employment. In some cases, for school division employees who have worked for three or four different school divisions in their 15 years, it takes a bit of time. But honestly, it will be worth it for people who were told in 2013 or 2014, “You have the wrong kind of loan, you don’t qualify.”
And we encourage them to not only look at the past 10 years, but to look back to 2007. Because we’ve had borrowers who, when they did the review, not only had all 120 qualifying payments, but they have discovered that they made payments after the 120th. And they also get refunds.
It can even be a new borrower, someone who got their loan three or four years ago, who already had the right kind of loan, the right kind of repayment plan, but maybe he had a few months of abstention here and there. Go ahead and apply now, let the government know you are applying for this program, so they can look and see if there are any issues in your story that can be fixed in the future.
Once repayment restarts in January, all borrowers will need to follow an income-driven repayment plan to continue to qualify. So even if by December they have made 100 payments, they will still have to make another 20 payments from January. But if they don’t follow an income-driven repayment plan, those months won’t count. So that’s what we’re hoping for, not only correcting some of the mistakes of the past, but also putting borrowers on the right track and doing the kind of outreach and information sharing that should have happened when the program started in october. 2007.
Anything else anyone considering applying for this waiver should know?
If borrowers have a particular type of loan, the Federal Family Education Loan Program, they will need to consolidate their loans before they can be discharged. The law does not allow them to pay FFEL loans under this program. But it’s a fairly simple process. It is really incumbent on them to consolidate their loans into a direct loan, so that they become eligible for this limited waiver.
I will say that this consolidation must take place before the October 31 deadline. This is one of the reasons why we hope they push the deadline beyond October 31st. Because right now there is a backlog of applications. And I suspect there are a lot of applications in that pile that weren’t reviewed and didn’t have the right type of loan. And it may even be after October 31, before anyone even sets eyes on it and realizes, “Oh, this person needs to consolidate.