The Biden administration announced that it will reform Public Service Lending (PSLF) by introducing a variety of data reconciliation options for automatic lending and allowing a waiver of counting certain payments. Read the publication here.
According to statistics from the US Department of Education, only about 2 to 3% of borrowers who applied for PSLF were able to pay off their student loans. And the US Government Accountability Office (GAO) has identified many issues with the PSLF program.
Which PSLF reforms can be implemented through action by the executive? And which reforms of the PSLF program can be implemented through new regulations? Here’s what you need to know.
PSLF reform of Biden’s government
Biden’s government is introducing three major PSLF reforms to make the process easier for borrowers. These include:
A limited PSLF waiver that allows all payments from student borrowers to count towards the PSLF regardless of the loan program or payment plan. This waiver allows student borrowers to count all payments for loans from the Federal Family Education Loan (FFEL) Program, Perkins Loan Program, or other non-direct loan programs so long as a PSLF employment certificate form is submitted AND the loans are expired before October 31st Consolidated into direct loans in 2022.
Automatic lending to PSLF for military personnel and federal employees using federal reconciliation. We’ve discussed at length here about using federal reconciliation to streamline automatic student loan forgiveness.
Review rejected PSLF applications for errors and allow borrowers to reconsider their PSLF provisions. This appears to be an extra layer of the Student Loan Ombudsman to help resolve PSLF issues.
Current PSLF legal and regulatory restrictions
The granting of public service loans was enacted during the Bush administration by the College Cost Reduction and Access Act of 2007 (PL 110-84). The legal language at 20 USC 1087e (m) (1) states that the loan:
- Do “120 monthly payments on the eligible direct credit from the federal government” Qualify for credit waiver.
- Have been “Employed in a public service during the period in which the borrower is making each of the 120 payments.”
Lending is by loan, not Per borrower. This prevents payments from being counted before a loan is consolidated. The legal wording also restricts permitted loans to direct loans. Loans under the Federal Loan Program for Family Education (FFELP) are not eligible.
The original PSLF rules required that eligible payments be made under an income-based repayment plan or the standard repayment plan. Suspended payments (e.g. time spent in an economic emergency or toleration) do not count towards loan waivers. However, there are exceptions to these two rules.
Payment pause and interest waiver during the pandemic
Has counted towards the PSLF if the borrower is employed full-time for a qualified public employer. And Congress later created the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) program, which allows borrowers to make payments under the tiered and expanded repayment plans under certain circumstances.
Which PSLF reforms can be carried out through action by the executive?
The regulations that appear in 34 CFR 685.219 largely reflect the law described above. Still, there are steps the von Biden government can take to reform the PSLF program by issuing an executive order or new regulations.
Some borrowers have reported that one or more of their PSLF Eligible Payments was not counted due to red tape and government bureaucracy. Common complaints are:
- Eligible payments are not counted because they were made late or biweekly.
- Automatic payments are not counted as they have not been rounded up to the nearest penny.
- Payment history information will not be transferred correctly if the borrower’s account has been transferred from one federal credit service provider to another.
- The timing of the payments, especially at the beginning of the qualifying employment, means that payments are not counted towards the forgiveness.
All of these issues listed above can be addressed through executive action.
The US Department of Education may also issue an executive order to Credit months of active service with the US Forces towards the PSLF (based on authority of the Heroes Act of 2003). And just like with COVID-19 Forbearance, those months can count even if no payments have been made.
Which PSLF changes can be made by new regulations?
Some PSLF reforms cannot be implemented through executive action, but instead need to be implemented through new regulations. The US Department of Education can enact new regulations with Negotiated rule-making (NegReg).
There is a pending NegReg that started in October 2021 that could be used to account for regulatory changes. This process usually takes a year. However, there are two ways the US Department of Education could shorten the process.
- Make a preliminary final rule: This eliminates the public comment period. However, the application of preliminary final rules is limited to emergency situations.
- Implement the changes early: The provisions of the main calendar provide that a final rule published by November 1st will take effect the following July 1st. However, the US Department of Education has the discretion to allow a definitive rule to be introduced earlier.
But can the US Department of Education enact new regulations that contradict the clear language of the statute and the intentions of Congress? Technically, they cannot do that. But the US Department of Education may enact new regulations that vary from the statutes.
Congress can now use the Congressional Review Act to repeal newly enacted ordinances within 60 legislative days. Unless Congress passes a joint resolution repealing the rules, the rules will go into effect.
If Congress is controlled by the same party as the President, new regulations issued by the departments are unlikely to be repealed. Both Democratic and Republican administrators have taken advantage of this loophole.
What Kinds of New PSLF Regulations Might the US Department of Education Issue?
The U.S. Department of Education could use the mechanism described above to enact new regulations that count payments from eligible FEEL borrowers for student loans as part of income-based repayment (IBR). If such regulations were not repealed by Congress, they would allow payments under the FFEL program to count towards the loan waiver.
This mechanism could also be used to allow payments made prior to loan consolidation and during an economic distress postponement to count towards loan waiver.
The US Department of Education could too Expand the definition of public service to include nurses and doctors, as well as others who have worked on the front lines of the pandemic. Currently, healthcare workers can only qualify for PSLF if they work for government or nonprofit hospitals and clinics.
Are there other ways PSLF reforms could be blocked?
Aside from the Congressional Review Act, there is one more way that critics could potentially block PSLF reforms made through executive action or new regulations. You could file a lawsuit against the US Department of Education under the Administrative Procedures Act (APA) on the grounds that the changes “Arbitrary, capricious, abuse of power, or otherwise illegal.”
However, an APA lawsuit is unlikely as it could amount to political suicide as a decision would likely be made shortly before the 2022 midterm elections. Even if one party wins the process, it can lose the election. This applies in particular to the extent that a blocked regulation would injure members of the US armed forces.