Education Department Proposes New Rules for Public Service Loan Forgiveness

This week, the Education Department released proposed new regulations governing the Public Service Loan Forgiveness (PSLF) program.

“We’ve heard from borrowers who have faced roadblocks when attempting to pursue the loan relief they’ve earned or are entitled to,” said a top Education Department official in a statement accompanying the release.

“Borrowers have had to navigate narrow rules and a needlessly complicated system… Borrowers should not have to jump through hoops to get the relief they deserve. The regulations we’ve proposed today would remove many of those barriers and help create a federal student loan system that works better for borrowers.”  

The new rules follow last year’s negotiated rulemaking sessions, during which a committee of key stakeholders tried to reach a consensus on key sets of reforms to various student loan programs.

During the negotiated rulemaking session for the PSLF program, the committee was unable to reach a consensus. As a result, the Department of Education moved forward in drafting proposed new regulations on its own, while factoring in the concerns and comments from members of the negotiated rulemaking committee.

The proposed new PSLF regulations would make several changes to the program that could benefit thousands of student loan borrowers. But the reforms don’t go as far as some advocates had hoped. Here’s an overview.

Background: PSLF and the Limited PSLF Waiver

The PSLF program can provide complete loan forgiveness for federal student loan borrowers who work for certain nonprofit or public organizations for 10 years or more. But the program's success has been hampered by complicated rules and poor oversight, leading to high denial rates.

The Biden administration sought to address these issues last fall by establishing the Limited PSLF Waiver — a temporary initiative that relaxes some of the core rules governing the PSLF program.

Under the waiver, the Department of Education can retroactively count loan periods for qualifying borrowers that would have been ineligible under the original PSLF regulations. This includes payment periods on the “wrong” type of federal loans or under an ineligible payment plan, as well as partial, lump sum or untimely payments. Under subsequent temporary reforms announced in April, the Department can also count certain past deferment and forbearance periods towards PSLF.

But the Limited PSLF Waiver was temporary and only applied to past loan periods. It ended on October 31, 2022. Student loan borrower advocacy groups have urged the Biden administration to extend the waiver, but Education Department officials have been non-committal. Top officials have instead pointed to proposed regulatory changes as a better long-term fix for the PSLF program’s problems.

Related: 4 Key Dates Student Loan Borrowers Need to Know About

Key features of the proposed new PSLF regulations

While the proposed new PSLF regulations would codify into law certain elements of the Limited PSLF Waiver, they fall short of the sweeping relief that the waiver provides. Still, the proposed changes would positively impact borrowers seeking student loan forgiveness through PSLF. The new rules would:

• Relax strict requirements regarding qualifying PSLF payments by allowing untimely payments, partial payments, and lump-sum “pay ahead” payments to count towards PSLF.
• Allow certain kinds of deferment and forbearances to count towards PSLF, including a cancer treatment deferment, economic hardship deferment, military-related deferments and forbearances, and involuntary administrative forbearances imposed by loan servicers to process application forms.
• Simplify the definition of qualifying employment to be 30 hours per week or more.
• Expand the definition of qualifying employment to cover non-tenured faculty.
• Automate the PSLF process where possible by facilitating data-sharing between major public service employers (such as the federal government and state university systems) and the Department of Education.
• Codify a PSLF reconsideration process for borrowers who are denied student loan forgiveness or given erroneous determinations of qualifying payments.

But key elements of the Limited PSLF Waiver, including broadly allowing nearly any period of repayment (as well as many periods of deferment and forbearance) on nearly any kind of federal student loan to count towards PSLF, are not included in the proposed regulations.

Related:

Related: Democrats Press Biden Administration to Enact Wide-Scale Student Loan Forgiveness

The Education Department indicated that this was because “statutory restrictions” prevent these elements from being codified into formal regulations. Agency regulations are derived from federal statute, and a regulatory overhaul cannot fundamentally change the meaning and intent of those statutes. As a result, permanent changes to core aspects of the PSLF program may require an act of Congress.

But the proposed regulations also do not address concerns about qualifying employment raised by commenters during the negotiated rulemaking session, which may not be barred by statute-related restrictions. For example, some advocates had hoped that the definition of qualifying employment would be expanded to include certain independent contractors who work exclusively for public service clients, as well as doctors who provide services at nonprofit hospitals but are not directly employed by such hospitals.

The PSLF regulatory overhaul is not final

The Department of Education also released proposed regulations governing a number of other federal student loan relief programs, including Borrower Defense to Repayment, the Total and Permanent Disability Discharge program, and Closed School Discharges. The Department also proposed eliminating several student loan interest capitalization events.

The changes the Department of Education is proposing to PSLF and other federal student loan relief programs are not final. Some of the concerns previously raised by student loan borrower advocates could still be addressed. As part of the release of the proposed changes, the Department is inviting public comment on many of these new rules. According to the Department, “Comments must be submitted via the Federal eRulemaking Portal at Regulations.gov.”

After the public comment period, the Department is expected to issue finalized regulations, which would then be effective in July 2023 at the earliest.