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A new bill proposed in Congress could revamp the future of student loan forgiveness.
Here’s what you need to know.
Student Loan Forgiveness: Proposal
U.S. Senators Kirsten Gillibrand (D-NY) and Tim Kaine (D-VA) introduced a new bill Thursday, which would rework the current Public Service Loan Forgiveness program, a federal program that forgives federal student loans for borrowers who work in public service. The goal is to expand the number of people who can qualify for the program and receive student loan forgiveness.
The bill is co-sponsored by a cadre of Democratic senators, many of whom – like Gillibrand – are running for president. Co-sponsors include, among others, Kamala Harris (D-CA), Elizabeth Warren (D-MA), Bernie Sanders (I-VT) , Cory Booker (D-NJ) and Amy Klobuchar (D-MN).
The Public Service Loan Forgiveness Program is a federal program created in 2007 that forgives federal student loans for borrowers who are employed full-time (more than 30 hours per week) in an eligible federal, state or local public service job or 501(c)(3) nonprofit job who make 120 eligible on-time payments.
The Public Service Loan Forgiveness program has come under fire from both Democrats and Republicans for its bureaucratic complexity, confusing guidelines, stringent requirements and taxpayer cost, among other complaints.
Student Loan Forgiveness Bill: Key Changes
This new bill would make several changes to the existing program, including, among others:
- Make all federal student loans eligible for public service loan forgiveness
Issue: Currently, only Direct student loans qualify for public service loan forgiveness.
Proposal: Make all federal loans eligible
Details: So, if you have Federal Family Education Loans (FFEL), you need to consolidate these federal student loans into a Direct Consolidation Loan to qualify for public service loan forgiveness. FFEL Loans are not considered federal student loans because they were issued by financial institutions prior, not by the federal government. How do you know if you have Direct student loans? You can check at Federal Student Aid. If you don’t see the word “Direct” next to your student loans, then you may need to consolidate those student loans.
Importantly, if you consolidate FFEL Loans, only your student loan payments made after you consolidate are eligible for public service loan forgiveness. For example, if you made 50 payments on your FFEL Loans, and then consolidated these loans into a Direct Consolidation Loan, you (unfortunately) would need to make 120 additional payments to qualify for public service loan forgiveness.
This new proposal would still require you to consolidate your FFEL loans, but it would count any payments you made prior to consolidation toward the required 120 monthly payments. That could be a potential lifesaver – both financially and psychologically – to any borrower who consolidated their FFEL loans later in their repayment process.
2. Make all federal student loan repayment plans eligible for student loan forgiveness
Issue: Only income-driven repayment plans are eligible.
Proposal: Make all federal repayment plans eligible.
Details: Another hold-up of the Public Service Loan Forgiveness Program is that borrowers must be enrolled in an income-driven repayment plan (such as PAYE or REPAYE, for example), and make a majority of the 120 repayments under such a repayment plan. That means other types of federal repayment plans do not qualify borrowers to receive student loan forgiveness.
This new proposal would make all federal repayment plans – such as the graduated or extended repayment plans – eligible for public service loan forgiveness.
You can determine which student loan repayment plan helps you receive the highest amount of student loan forgiveness with this Public Service Loan Forgiveness calculator.
3. Receive student loan forgiveness after 5 years
Issue: Student loan forgiveness can only be received after 120 monthly payments, which equates to 10 years of work in public service.
Proposal: Offer 50% student loan forgiveness after five years
Details: While the intention of the Public Service Loan Forgiveness was to encourage a long-term commitment to public service, this proposal would provide student loan forgiveness after a shorter-term commitment. This would benefit borrowers who may work in public service for several years and then pursue a career in the private sector, for example.
President Trump: End Student Loan Forgiveness
In his 2020 budget, President Trump called for the elimination of the Public Service Loan Forgiveness program for borrowers who borrow a new student loan after July 1, 2020.
April 11, 2019 at 04:35PM
Forbes – Entrepreneurs