Last week, the Department of Education announced huge changes to the Public Service Loan Forgiveness (PSLF), a federal loan forgiveness program for distressed students.
Through systematic reforms, the Biden administration is temporarily relaxing requirements that limited PSLF eligibility to certain types of federal student loans and certain repayment programs. Once the changes are implemented, the PSLF program will effectively be temporarily expanded to include more types of federal student loans (such as FFEL loans and federal Perkins loans) and most types of payments made under any plan. refund available. The result will be a major expansion of the program that could ultimately benefit nearly 600,000 student loan borrowers, according to the Department of Education.
But despite the importance of the Biden administration’s actions, a number of borrowers and student loans will still be excluded from the PSLF changes. Here is a preview.
Parent PLUS loans excluded from the new PSLF relief
Parent PLUS loans are a type of federal student loan granted to the parent of an undergraduate student. While the loan benefits the student (the child), the borrower is the parent. Parent PLUS loans generally have higher interest rates and fewer repayment plan options compared to other types of federal student loans.
Parent PLUS loans may be eligible for Public Service Loan forgiveness if they are bundled into a Direct Federal Consolidation Loan and repaid under an Income-Conditional Repayment Plan (ICR) (Note that this is not the optimal solution for all Parent PLUS borrowers). However, while the new changes to Biden’s PSLF will allow payments made before the direct loan consolidation to potentially qualify for the PSLF, Parent PLUS loans are expressly excluded from this new reform. As a result, payments made on Unconsolidated Federal Parent PLUS Loans will continue to not count against the PSLF.
FFEL consolidation loans for a spouse excluded from the changes to the PSLF
One of the hallmarks of the new PSLF program expansion is that payments made on FFEL program loans (a former type of federal student loan issued by commercial lenders) are now eligible for student loan forgiveness. This was not the case under the original eligibility rules. However, FFEL borrowers still need to consolidate their FFEL loans through the Federal Direct Consolidation Loan program before October 31, 2022 to qualify for the new benefit.
One type of FFEL student loan is a joint or joint consolidation loan – a now defunct program that allowed two spouses to combine their federal student loan balances into a single loan, with both spouses jointly responsible for its repayment. The program was halted, but some borrowers, including those who have since divorced, are stuck with these types of loans. Joint FFEL Consolidation Loans cannot be reconsolidated into a Federal Direct Consolidation Loan under current federal law and therefore may not qualify for PSLF. It would probably take an act of Congress to fix this problem.
Payments made before October 2007 do not count towards the PSLF
The PSLF program was promulgated in October 2007, and any payments made prior to the inception of the program cannot count toward the program’s student loan waiver term. The Biden administration’s new PSLF changes do not (and cannot, legally speaking) change this rule. Therefore, payments made prior to the creation of the civil service loan forgiveness in October 2007 will continue to be excluded.
Private student loans excluded from PSLF modifications
Private student loans are not covered by the new administration changes to the PSLF. This is because the PSLF is a federal student loan program and Biden’s legal authority is limited to actions under federal law. The Biden administration relied on the HEROES Act of 2003 to enact sweeping changes to the PSLF program, but that law only governs federal student loan programs. It does not authorize Biden to provide relief to private student loan borrowers, and federal law does not allow consolidation of private student loans into a federal loan.
Borrowers who have already paid off their student loans will not benefit from the changes to the PSLF
Student loan borrowers who could have gotten relief from the new PSLF changes, but who paid off their student loans before last week’s announcement, will not be eligible for any benefits under the new Ministry of Education rules. .
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