Since 2007, college graduates that borrowed federal student loans have been able to capitalize on a program called the Public Student Loan Forgivenessprogram that erases any remaining student loan balance after ten years of payment. To qualify for the program, the graduate has to work for a government agency or qualifying nonprofit organization and only public loan balances can be forgiven.
As the most recent graduating college class takes the title for being the most indebted group each year from the previous graduating class, the loan forgiveness program is welcome relief helping graduates struggling with student loan payments, but, the forgiven loan balance simply doesn’t disappear. The colleges still receive all the money borrowed, including the forgiven amount, and the remaining cost shifts from the graduate to the taxpayers.
How the Public Student Loan Forgiveness Program Works
The Public Student Loan Forgiveness program started in 2007 allowing qualified graduates working for a local, state, or federal government office to have any remaining loan balance forgiven after 10 years. This forgiveness program is a more generous version of the existing income-based repayment (IBR) plan that forgives any remaining federal loan balance after 20 years of payments. The 10-year forgiveness program is more selective, as government employees or public service volunteers are the only qualifying candidates, but students stand to have a 50% larger amount of student loan debt to be forgiven after 10 years of payments instead of 20 years.
The most recent statistics show that 431,852 graduates have enrolled in the program through June 30, 2016 with most of the participants enrolling within the previous two years. Plus a majority of the enrollees have at least $60,000 in federal loans as a combination of undergraduate and graduate loans and 30% of the enrollees have at least $100,000 in outstanding student loans.
While the 10-year forgiveness program has continuously received much fanfare for offering an incentive for highly educated college graduates to pursue low-paying public service careers, enrollment has greatly exceeded expectations. This enrollment boon is what has caused several politicians and lawmakers to consider reforming the program to manage costs since most enrollees joined in the past two or three years after completing graduate school. The Congressional Budget Office estimates that 25% of all current American jobs are in the public sector. At that rate, theoretically, every 4thcollege graduate qualifies for the program.
The first student loans will not be forgiven until October 2017, so there is still a lot speculation how much the taxpayers will be on the hook for, but, the costs will continue to increase as the decade progresses and the recent enrollees have their loans forgiven. Many citizens might be aware that loan forgiveness programs exist for certain career fields like Peace Corps volunteers and AmeriCorps teachers, but, not for all government employees that qualify for income-based repayment plans.
Proposed Forgiveness Limits
Economically, a lot has changed since the PSLF program was first introduced in 2007. Something called the “Great Recession” hit and a wave of undergraduate students also delayed entering the workplace to pursue a graduate degree or professional training to be more competitive in the job marketplace.
Whether the original intent of the loan forgiveness program was to primarily serve undergraduate alumni or graduate and law school candidates with significantly high debt loads is unknown, but, graduate school alumni are the largest demographic of enrollees and they brought their student loans with them. Most people did not expect so many recent graduates to enroll in this forgiveness program when it was first introduced as a way to recruit Millennials to serve in high-need professions.
To stem the financial losses that the federal student loan programs will be absorbing in the coming years, the Obama administration has proposed limiting the forgiveness amount to $57,500 per student. This dollar amount is the current maximum amount that an independent student can borrow for five years of undergraduate study, although dependent students are only able to borrow $31,000.
If the forgiveness cap is enacted, the Congressional Budget Office predicts a $5.4 billion savings over 10 years. To further emphasize how program enrollment has skyrocketed, the CBO originally projected cost savings of $265 million over 10 years when the Obama administration first proposed the $57,500 limit.
Some believe that Obama’s proposed cap of $57,500 is still too high. Several reasons for the objections is that the Public Student Loan Forgiveness program is the most lenient student loan forgiveness program available. It also provides more aid than the Federal Pell Grant program that maxes out at $34,890 per student for six years of enrollment. The proposed cap will allow must enrollees to attend grad school for free or at a steep discount. As most of the 431,852+ enrollees have at least $60,000 in student loans when enrolling in the forgiveness program, most likely the forgiveness amount would be near the $57,500 cap.
Reasons to Support Public Student Loan Forgiveness
Certain political candidates this election cycle have been calling for stronger student loan forgiveness programs. One of their arguments is that the price of an undergraduate and graduate education has increased so fast in recent years, and certain professions like serving as a counselor, inner-city teacher, or public defender are not cost-effective without more financial aid. Otherwise, these public workers would be repaying the student loans for the rest of their lives, unless the various government agencies increase the salaries so they can afford a traditional 10-year repayment plan.
Either way, as the argument goes, the taxpayer will have to pay more money. So the option is to either forgive any unpaid loan after 10 years of payments by the college graduates or pay higher salaries for the entire duration of a public servant’s career. Until the first enrollees begin requesting loan forgiveness in the fall of 2017, it can be difficult to determine which option, higher salaries or limiting forgiveness, will be more affordable.
The Future of Student Loan Forgiveness
So far, student loan forgiveness reform hasn’t made much progress on Capitol Hill and it is possible that most lawmakers are not fully aware of the current loan forgiveness programs. For now, enrollment is still increasing in the 10-year forgiveness program and all current enrollees can have the entire unpaid balance repaid after ten years.
Most citizens do not realize the full scope of the loan forgiveness program. It was enacted to recruit Millennials into serving low-earning public service career fields, and the cost of the program will continue to rise as enrollment and the cost of post-secondary education steadily increase. It can be hard to predict if future budget shortfalls will occur if more student aid is required than available. At any rate, the plan will cost money, but the real question is whether it will save money over the long haul.
Author: Jeff Gitlen
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