The Public Service Loan Forgiveness act (PSLF) has existed for some time. President Obama has make higher education an important part of his agenda. He believes that education is a key ingredient in America’s future success. He has proposed several initiatives geared toward improving the quality of education in America and making college more affordable. One of his key plays include a massive expansion of the PSLF act.
What is the PSLF?
The PSLF was enacted in 2007 and includes these main benefits:
Provides loan forgiveness for those working for any federal, state or local government or a not-for-profit tax exempt organization. The nature of the employment nor the type of services provided by the organization does not matter for PSLF purposes.
Certain not-for-profit organizations which are not tax exempt may also qualify including; emergency management, public safety, law enforcement, school-based services, and services for individuals with disabilities and the elderly
Loan forgiveness is available for those that have made on time monthly payments for 120 months.
Only applies to specific Federal loans, but does apply to consolidated loans.
Applies to loans on the Income-Based Repayment (IBR) Plan, Pay As You Earn Repayment Plan, or the Income-Contingent Repayment (ICR) Plan.
A full explanation, a comprehensive FAQ and PSLF calculators and tools can be found at Federal Student Aid.
Current Federal law also allows for loan forgiveness after 25 years of repayment.
President Obama’s Plan
The President’s plan calls for a wide array of changes.
Expands the types of jobs which qualify for PSLF to include all public service workers, including teachers, nurses and military personal. The debt forgiveness would continue to be available after 10 years.
Limit Payments to 10% of income. The current rate is 15% and is based on income above a basic living allowance.
Forgive any remaining debts after 20 years. Currently debts may be forgiven after 20 years.
President Obama states that more than 1 million Americans would see their monthly student loan payments reduced. According to the President, individuals making $30,000 a year with $20,000 in student loan debt would see a decrease of $110 monthly.
How Much Does the Plan Cost Taxpayers?
According to the White House, the new initiatives will be fully funded by Student Loan Reforms. The main source of funding comes from the elimination of federal subsidies given to financial institutions that make guaranteed student loans. The White House quotes the non-partisan Congressional Budget office which states ending the subsidies will free up nearly $68 billion over the next 11 years. The President wants to use this amount to increase college affordability and deficit reduction.