Is Public Service Loan Forgiveness not living up to its hype?

When the Public Service Loan Forgiveness (PSLF) program was first introduced in 2007, at first glance it seemed like a pretty sweet deal. Student loan debt holders who worked at either a federal, state or local agency or 501(c)(3) nonprofit for at least 10 years, while making 120 qualifying payments on their student loans during that time, would have the remainder of their debt balance forgiven. You’d have millions of Americans incentivized to enter into public service, while – eventually – freeing them from the financial burdens of their student debt.

But, now that we’re actually 10 years into the program and the first wave of applicants are expecting their loans to be forgiven, we’re seeing that PSFL is not proving to be all it was first cracked up to be. With so few successful accepted applications, it’s clear that the program is not benefitting loan holders as they had hoped.

Consider these numbers from the Department of Education:

Nearly 50,000 PSLF applications have been submitted as of September 2018
72 percent of applications processed were rejected due to failing to meet program requirements
27 percent of applications processed were rejected because of missing information or incomplete forms

Out of nearly 50,000 student loan borrowers who applied, only 420 have been approved and then only half of those have actually had their remaining loans forgiven. Two-hundred out of 50,000. Half of 1 percent.

When your mission statement is to forgive student loan debt after a decade of public service, and your success rate is half of 1 percent, there is clearly room for improvement.

Breaking down what’s behind the rejections

Incentivizing people into public service is a great idea on paper, but it only works if there’s an actual incentive at the end of the tunnel. Compounding the problem is that there isn’t an easy way to determine if you’re even eligible for the program before you devote a decade of your life to it. Applicants can spend years in a public-sector gig only to learn near the end of it that they’re not actually eligible for loan forgiveness. For over 99 percent of Americans who took up PSLF’s offer 10 years ago, nearly all of them are now getting the bait-and-switch treatment.

Communication may be an issue. One of the requirements that applicants may have failed to meet is making 120 qualifying payments over the decade. While the Department of Education’s numbers did not parse out how many of these rejections were due to failing to make that number of payments, the requirement itself raises another hurdle for applicants; it’s not just a decade of public service AND student loan payments during that period that get your balance forgiven, but a specific number of payments over that period, which consequently may end up taking longer than 10 years to make. There’s a communications gap that is evidently creating problems for applicants years later.

Vault can help student loan borrowers understand options for their situation

For some, PSLF is a great option. For others: buyer beware. Navigating the waters of PSLF is not impossible, but it is challenging and complicated. Vault can help you evaluate all your options and map out upfront all of the potential hurdles of going this route, to help avoid the possibility of any surprises coming your way over 10 years and 120 payments later.

Vault works with your company’s HR team to provide employees with debt-defiant student loan repayment. No tricks, no bait and switch: this is a real workplace benefit that helps you to hire and retain the best talent by contributing to employees’ student loans now, not in 10 years.

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