Borrowers who enrolled in the Public Service Loan Forgiveness Program (PSLF) will be eligible to have their loans forgiven starting in October 2017. The program was created in 2007, and borrowers may qualify if they are employed in a federal, state, or local government or nonprofit job full time which often included those who worked in healthcare, education, and more. It requires 120 qualifying loan payments (roughly 10 years). This loan forgiveness is also tax-free to borrowers, unlike income-driven repayment plans.
Participation in PSLF has been much higher than initially anticipated. Originally designed as a small program to help low income borrowers, it has gone from having 25,000 people enrolled in 2012 to 431,000 today with enrollment continuing to increase. The high enrollment is partly due to the broad definition given to the term public service. According to the Government Accountability Office, about 25 percent of the current workforce qualify for PSLF. Borrowers can also apply retroactively as far back as 2007.
One thing that government officials did not foresee was that borrowers in PSLF would have some of the highest student loans balances. The median balance of borrowers is $60,000 and 30 percent have over $100,000 in student loan debt.
In a Brookings report, American Enterprise Institute scholar Jason Delisle states that loan forgiveness will not only prove costly for taxpayers, it will benefit mostly graduate and professional students.
About 80 percent of borrowers enrolled in PSLF are graduate students. This is significant because undergraduates can only borrow a maximum of $31,000 but there is no limit to the amount of money graduate students can borrow. This has caused Delisle to argue that the PSLF provides graduate school virtually free for many borrowers.
In his report for the Brookings Institute, Deslisle states, “Imagine how students’ and schools’ incentives are influenced when armed with such information. Students who might balk at the high price of a graduate degree that is not likely to lead to a large increase in their earnings now face much lower effective prices for the degree—even a price of zero. That is bound to allow schools to set prices higher than they otherwise would and offer degrees with questionable value in the labor market.”
The Obama Administration proposed a cap of $57,500 on loan forgiveness, which the Congressional Budget Office estimates would save taxpayers more than 6.7 billion over 10 years. Any changes to the PSLF depend largely on the outcomes of the upcoming elections and would likely only affect future borrowers.
Beginning next year, the government will begin forgiving the loans of thousands of borrowers. Until this happens, the ultimate cost to taxpayers will be hard to determine.