In 2007, Congress passed a law creating the Public Service Loan Forgiveness (PSLF) program, promising debt forgiveness to student loan borrowers who made their student loan payments and did public service work for ten years. That same year, Congress also passed a law that allowed all borrowers to reduce their monthly payments on loans if their income was low relative to their debt (known as income-based- repayment). Together, the two laws established public service jobs as not simply a charitable commitment that college graduates made for a year or two after college, but rather as a viable career option, even for graduates carrying large student loan debts.
The establishment of the Public Service Loan Forgiveness program in particular was an historic, positive, and idealistic promise. Implementing the program, however, has been an enormous challenge. Many thousands of borrowers seeking to access the program had immense difficulty doing so because they had received confusing or wrong information—either because they were misled by contractors, hired by the U.S. Department of Education to help administer the program, who didn’t understand the details of the law; were steered down bureaucratic rabbit holes; or were preyed upon by for-profit companies that capitalized on headlines about the complexity of the programs and charged borrowers for help in applying for benefits that should have been automatic. A further problem has been that many thousands more borrowers have been denied debt relief because, even though their employment histories seem to have fulfilled the requirements specified in the law as passed by Congress, these borrowers were deemed not qualifying for relief due to the department’s regulations interpreting the law just after it was passed.
The Biden administration has taken some steps, using pandemic emergency authority, to ease the burden on student borrowers seeking relief through the PSLF program, such as establishing a limited-time waiver so that borrowers can receive credit for past periods of repayment that would otherwise not qualify for PSLF. Further, the Department of Education has proposed longer-term regulatory changes to clarify and smooth some of the confusion and hassles borrowers have faced.
But the problems with PSLF cannot be blamed just on fumbles in administration, or on unclear regulations, or on the hostility to borrowers in the previous leadership of the department; nor can they be solved by one-time actions or fine-tuning in the margins. The chaos that has mired PSLF is the result of a flawed program design, one that requires a government agency to monitor or affirm, with precision, the work hours and job duties, or at least employer types, of millions of individual student loan borrowers in the economy. Fixing PSLF will require Congress revisiting the legislation to improve or rethink its design.
Some members of Congress have proposed student loan reforms that seek to address a few of the problems with PSLF and the income-driven repayment program. While a recent press release announcing a bill by a trio of Republican legislators makes their plan sound like an anti-Biden message bill rather than serious lawmaking, the proposal has some interesting components. For example, even though the press release criticizes the administration for supposedly abusing its authority to help distressed borrowers, the GOP bill itself would actually give the secretary of education the power to address one of the most frightening aspects of income-driven repayment: the uncapped ballooning of interest costs. Perhaps there is a bipartisan deal to be made in Congress by trading some of the complex elements of PSLF for other improvements to student loan repayment plans.
The Messy Process that Led to Today’s PSLF
The groups pressing Congress to enact PSLF in 2007 were excited at the time, because the proposal was constructed as an entitlement. That meant that, once passed, anyone and everyone who ultimately qualified would be able to get the benefit; it was not limited by a future congressional appropriation. At the same time, however, the bill could not be advanced in Congress unless the Congressional Budget Office (CBO) deemed the future costs to be within certain parameters. To achieve a cost estimate that fit within the contours of those parameters, the PSLF program included bells that a borrower needed to ring and whistles they needed to toot before they could get the benefit.
The bells and whistles were numerous. Borrowers, to claim the benefit under the legislation as enacted, would need to be working in an eligible job for ten full years. The work had to be full time—a term that was not defined. The legislation required the borrower who wants forgiveness to have made 120 monthly payments of certain types on their student loans while in the qualifying job. An additional wrinkle, thrown in to meet the CBO budget requirement, was that the loans could not be those in the bank-based guaranteed loan program (known as FFEL loans), which was larger at the time, but instead had to be in the Direct Loan program, which cost the government less. Anyone could switch their loans into the Direct Loan program, so technically the PSFL program did not exclude those borrowers, but that additional administrative hurdle meant that CBO’s cost estimate was reduced, both because those loans would cost the government less, but probably also because the bureaucracy would reduce usage of the benefit.
The bill was a forward-looking incentive: past public service work or loan payments before the bill was enacted were explicitly excluded, which meant that the forgiveness would not start kicking in for anyone until a decade later, in 2018. Some critics alleged that the ten-year requirement greatly undermined the program’s usefulness, because the baseline period of repayment for most federal student loans is ten years, during which time a borrower would make 120 qualifying monthly payments, and there would not be anything left to be forgiven. The program, however, was designed to work along with income-driven repayment plans—which have repayment periods ranging from ten to as long as twenty-five years—to target the benefits to borrowers who had low income relative to their student loan debt during any of the ten years of service. The targeting reduced the cost of the program.
After the bill was signed by President Bush, the Department of Education had to figure out what the words written by Congress actually meant, and how to implement that meaning. That task turned out to be quite a challenge—perhaps, in hindsight, an impossible one.
The law as written by Congress said that loan forgiveness sometimes would depend on the job that a borrower was doing—that is, whether they were employed in any of a number of listed “public service jobs.” Some of the listed jobs were quite general and broad, such as anyone working at a charity, or anyone in government (with an exclusion of anyone in Congress). Other items included on the list were quite specific and narrow, both in terms of job role and placement, such as “nurses in a clinical setting.” The law had been written, as is often the case in Congress, as a mish-mash of ideas from various elected officials and interest groups, all of whom wanted to see their chosen words remain in the final version of the bill. Here is who Congress said should get the ten-year loan forgiveness (emphasis added):
The Secretary shall cancel the balance of interest and principal due. . . for a borrower who. . . is employed in a public service job. . .
The term “public service job” means—
(i) a full-time job in emergency management, government (excluding time served as a member of Congress), military service, public safety, law enforcement, public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations, as such terms are defined by the Bureau of Labor Statistics), public education, social work in a public child or family service agency, public interest law services (including prosecution or public defense or legal advocacy on behalf of low-income communities at a nonprofit organization), early childhood education (including licensed or regulated childcare, Head Start, and State funded prekindergarten), public service for individuals with disabilities, public service for the elderly, public library sciences, school-based library sciences and other school-based services, or at an organization that is described in section 501(c)(3) of title 26 and exempt from taxation under section 501(a) of such title; or
(ii) teaching as a full-time faculty member at a Tribal College or University as defined in section 1059c(b) of this title and other faculty teaching in high-needs subject areas or areas of shortage (including nurse faculty, foreign language faculty, and part-time faculty at community colleges), as determined by the Secretary.
In the regulation-writing process, the department staff looked to the law and realized that they would have no practical way of determining whether and when a borrower had been doing a particular job. At most, they could confirm borrower eligibility based on records of where the person worked. So the agency ignored the jobs listed in the law and instead offered the benefits to people working at particular types of organizations. Under the department’s approach, whether a borrower qualifies for forgiveness would be based on their loan payments and what entity employed them, not on what they did in their job. Here is the relevant portion of the regulations in effect today (emphasis added):
A borrower may obtain loan forgiveness under this program if he or she . . . Is employed full-time by a public service organization or serving in a full-time AmeriCorps or Peace Corps position –
Public service organization means:
(i) A Federal, State, local, or Tribal government organization, agency, or entity;
(ii) A public child or family service agency;
(iii) A non-profit organization under section 501(c)(3) of the Internal Revenue Code that is exempt from taxation under section 501(a) of the Internal Revenue Code;
(iv) A Tribal college or university; or
(A) A private organization that provides the following public services: Emergency management, military service, public safety, law enforcement, public interest law services, early childhood education (including licensed or regulated child care, Head Start, and State funded pre-kindergarten), public service for individuals with disabilities and the elderly, public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations, as such terms are defined by the Bureau of Labor Statistics), public education, public library services, school library or other school-based services; and
(B) Is not a business organized for profit, a labor union, or a partisan political organization.
The department’s replacement of jobs with organizations was a valiant effort to make a poorly drafted law implementable. In recent years, however, as people began applying for forgiveness, complaints about the inequities in the regulations escalated. Many early childhood workers, for example, are working at for-profit providers. Many doctors who work at public or nonprofit health facilities are technically self-employed or work for a partnership, which is not an eligible employer. The law as written by Congress included “public service for individuals with disabilities,” but physical therapists and others who provide services to the disabled community are excluded since they are frequently self-employed.
The complaints from people whose job responsibilities would qualify them for the PSLF benefit under the law written by Congress but who have been excluded by Department of Education’s regulations cry out for the department to declare certain people’s jobs—not their employers—as qualifying as public service. But the department is right that doing so would plague the already-problematic program with even greater confusion, bureaucracy, and inequities.
In its new round of draft regulations, the Department of Education is attempting to address some of the inequities in PSLF, while still remaining firm that it will not—cannot as a practical matter—make judgment calls about whether someone’s job did or did not involve “emergency management” or “public safety” or other public services listed in the law. Instead, the department is seeking input on other ways that they might expand categories of qualifying employers. It is a valiant effort, worthy of the attention given the current situation. But the proposed approach will not solve the underlying disconnect between program intent and administration: instead, a new set of inequities will be exposed, leading to more confusion and more complaints.
Congress Must Revisit PSLF
Increased partisanship in Congress has made it difficult for any major legislation to move forward outside the reconciliation process, and in this environment it will be easy for Democrats to reject or ignore the latest partisan-tinged Republican calls for reform to PSLF and income-driven repayment. But Democrats broadly agree that student loan repayment policies are a mess that only Congress can address, and underneath the GOP press releases are some reasonable proposals that could be seeds of a bipartisan discussion.
Secretary Cardona should convene key bipartisan members of Congress to commit their staffs to a serious—and relatively fast—discussion of reform of PSLF and income-driven repayment programs. Any public discussion likely needs to wait until the hot-button topic of debt cancellation is dispensed with, but there is no reason that idea-sharing cannot begin immediately, behind the scenes.
With the proposed regulations it is currently advancing, the Department of Education is doing the best it can in working with a flawed underlying law. Before a new set of regulations takes effect in a year, Congress should act to clean up the PSLF program so that student loan borrowers can enter the careers that best fit their needs and the needs of the community, while not being crushed by both student loan debt and bureaucratic nightmares.