Public Service Lending: Who Pays For It? Is there a cap?


The Public Service Loan Forgiveness (PSLF) program provides relief to student loan borrowers who work in the public sector. There is no limit to the number of public sector loans granted; The program awards your entire balance after 10 years of repayment.

Exactly how much PSLF awards depends on how much each borrower owes at the end of their decade of service. But while some people think this program is a no-brainer, others are suspicious of the potential cost to the taxpayer.

According to the Congressional Budget Office, the program could cost nearly $ 24 billion over the next decade. To understand what this program does and what its effects are, let’s address the following questions:

What is the Public Service Lending Program?

Congress launched the Public Service Loans Program in 2007, and President Barack Obama’s administration expanded it in 2012. Its aim is to provide low-paid public sector employees with relief from their student loan debts.

Borrowers first sign up for an income-based repayment plan (IDR) that limits their monthly payments to a percentage of their income. (Note: The government has expanded the types of repayment programs eligible for PSLF. Click here for the latest information.)

Then, after borrowers have made payments for 10 years (while working in a skilled job), their remaining federal student loans are canceled.

Why does PSLF cost so much?

Public sector loan lending sounds like a fabulous (and well-deserved) option for our public servants. So what’s the problem?

It could cost a lot more than originally thought. Here are two reasons for that.

1. Huge numbers of suitable borrowers

The admission requirements for PSLF are deliberately broad.

You can enroll in the program if you work for a government or nonprofit – which means an estimated 15% of the population (nearly 24 million people) could be eligible, according to the Brookings Institution. Of course, when filtering for people who owe student loans, that number gets smaller.

2. No ceiling for public sector loans

At the moment, there is no limit to the number of public sector loans granted. In other words, there is no limit to the amount of loan that can be given. So people can raise six-figure student loans for undergraduate and graduate students – and then be given to them.

Case in point: an estimated 30% of PSLF-eligible borrowers have loans greater than $ 100,000, according to the Brookings Institution.

What are the arguments against PSLF?

Jason Delisle is a Resident Fellow at the conservative think tank American Enterprise Institute and advocates changes to the PSLF program.

In the Brookings report above, he argued that the program is being misused as a subsidy for graduate students. Our public sector lending calculator can help you figure out what he means.

For example, let’s say you’re single, have an income of $ 35,000 that is growing 3.5% each year, and have loans with an average weighted interest rate of 5.70%.

This is what would happen under PSLF if you had an income-based payback and you had:

$ 50,000 in loans

  • Total amount paid: $ 31,412
  • Complete forgiveness: $ 46,818

$ 100,000 in loans

  • Total amount paid: $ 31,412
  • Complete forgiveness: $ 125,695

As you can see, the program sometimes makes the amount borrowed irrelevant – because the rest will be given out anyway.

Delisle cited an example of a man who had amassed $ 28,000 in loans as a student. He then completed a master’s degree in social work and then a position in the public service.

Assuming he was making the average salary for a social worker (remember, his payments would be based on income), he would only pay off $ 28,000 of his loans over 10 years. In other words, his entire course of studies would not have cost him anything.

“Thanks to PSLF, a student like the hypothetical above, faced with the choice of borrowing $ 10,000 to live frugally while studying, or $ 20,000 to support a more comfortable lifestyle, is likely more inclined to To choose the latter, ”wrote Delisle.

In Delisle’s eyes, PSLF is too generous and – because income-oriented repayment plans grant loans after 20 or 25 years – superfluous.

What are the arguments in favor of PSLF?

On the other side of the fence are progressives and officials.

“The stakes are high for college students, especially those who may be under financial stress after graduation,” wrote Mark Zuckerman, president of the Century Foundation. Because of increasing defaults and defaults on student loans, PSLF is “critical”.

He also argued that it benefits our country as a whole.

“For new graduates with student loan debt, that’s the promise [of] Lending and flexible repayment options can be an important factor in … accepting and keeping important public interest jobs, ”he wrote.

Isaac Bowers, Director of Law School Engagement and Advocacy at Equal Justice Works, agrees.

He wrote a response to Delisle’s article in the Huffington Post, arguing that only a small percentage of people eligible for PSLF actually have a student loan and will stay in the public sector for 10 years.

Bower called Delisle’s article “misleading” and said the PSLF was “an affordable and critical investment that will directly benefit all of our communities.”

What is the administration’s view of PSLF?

While the previous government proposed to completely abolish the PSLF program, Pres said. Joe Biden has suggested plans for reform.

During his bid for the presidency, Biden said he supported a ceiling on public sector lending of $ 50,000 with annual disbursements of $ 10,000.

Instead of waiting 10 years to get a full loan waiver, eligible borrowers could get a partial loan cancellation every year.

However, that forgiveness would be limited to five years, meaning that borrowers with a debt burden greater than $ 50,000 would still owe money after that time.

Biden made no changes to the PSLF program, but it’s worth keeping an eye out for future policy reforms.

Is PSLF a Good Idea?

What do you think? Is PSLF worth it?

Regardless of whether you support the program, you can always stand up for yourself.

If you haven’t already enrolled in school, think carefully before taking on student debt. If you’re already struggling with credit, find out more by reading our blog and learning more about programs like IDR and PSLF.

And if you have strong feelings about student loan forgiveness programs, reach out to your representatives to have your voice heard.

Rebecca Safier contributed to this report.

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