In late March 2018, Congress passed H.R. 1625, the Consolidated Appropriations Act, 2018 otherwise known as the omnibus spending bill. Contained deep in the thousand-page document was a provision that could potentially change how Public Service Loan Forgiveness is handled. If you want to follow along with me, the relevant text of the spending bill is available here by searching for “Sec. 315”.
Before we get into the weeds on what Congress actually did, you need to remember that to qualify for the elusive Public Service Loan Forgiveness a borrower must make 120 on-time payments on qualifying loans under a qualifying plan.
Only income-driven plans and the 10-year standard repayment plan qualify. (Of course, if you made 10 years worth of payments on the 10-year standard plan, you would have no loans left to forgive).
This limitation left many borrowers unknowingly out of luck. They made low monthly payments on, for instance, the graduated extended plan and didn’t realize they were not making qualifying payments towards their 120 for forgiveness. In one high-profile case, a teacher made 120 payments under a graduated plan only to learn she was not eligible for forgiveness.
Some members of congress have been interested in changing this obvious loophole — after all, what’s the point in excluding graduated repayment plans rather than income-based plan? The payments can be similar. If anything, borrowers on graduated plans can often end up paying back more.
Now the omnibus bill does something about it. The loan provides $350 million
for borrowers of loans . . . who would qualify for loan cancellation . . . except some, or all, of the 120 required payments . . . do not qualify for purposes of the program because they were monthly payments made in accordance with graduated or extended repayment plans
Congress does put in some caveats. I’ll translate each of these into English as we go:
Provided that the monthly payment made 12 months before the borrower applied for loan cancellation as described in the matter preceding this proviso and the most recent monthly payment made by the borrower at the time of such application were each not less than the monthly amount that would be calculated under, and for which the borrower would otherwise qualify for, clause (i) or (iv) of section 455(m)(1)(A) regarding income-based or income-contingent repayment plans, with exception for a borrower who would have otherwise been eligible under this section but demonstrates an unusual fluctuation of income over the past 5 years
In English: For the 12 months before an application for PSLF, the borrowers monthly payment must be at least as much as he or she would have paid under an eligible income-driven plan. This is supposed to stop people with higher incomes from utilizing PSLF without making at least 1 years worth of payments at the amount required by an IDR plan
Provided further, That the total loan volume, including outstanding principal, fees, capitalized interest, or accrued interest, at application that is eligible for such loan cancellation by such borrowers shall not exceed $500,000,000:
The max cancellation under this program is $500,000 (there’s a comma rather than a decimal, nominally making the limit $500 million. But this may be changed as a ministerial error during the codification process)
Provided further, That the Secretary shall develop and make available a simple method for borrowers to apply for loan cancellation under this section within 60 days of enactment of this Act
There should be an application process available within 60 days. Once I find out about it I will post an update.
Provided further, That the Secretary shall provide loan cancellation under this section to eligible borrowers on a first-come, first-serve basis, based on the date of application and subject to both the limitation on total loan volume at application for such loan cancellation specified in the second proviso and the availability of appropriations under this section:
This one at least is straight forward and important. The money is first-come-first-serve.
Provided further, That no borrower may, for the same service, receive a reduction of loan obligations under both this section and section 428J, 428K, 428L, or 460 of such Act
These citations refer to loan forgiveness for teachers, loan forgiveness for service in areas of national need, loan repayment for civil legal assistance attorneys and a separate loan cancellation for teachers program, respectively. So, no double dipping.
All things considered, this is great news for borrowers who were near the end of the process when they realized they’d made the wrong payment under the wrong plan. Unfortunately because the money is first-come-first-served, there will need to be a more permanent solution before borrowers who are years away from PSLF-eligibility can be assured that their years on graduated plans will count.