A new bill from House Republicans could end Public Service Loan Forgiveness for student loans.
If you have student loans, and plan to work in public service, pay attention.
Or, if you have student loans and plan to use a federal student loan repayment program, this bill could impact your plans.
Here’s what you need to know.
Rep. Virginia Foxx (R-N.C.) and Rep. Brett Guthrie (R-KY) of the House Committee on Education and the Workforce introduced the 542-page legislation known as the Promoting Real Opportunity, Success and Prosperity through Education Reform (PROSPER) Act.
The bill impacts higher education in several material ways, including the immediate elimination of Public Service Loan Forgiveness.
PROSPER also reduces federal aid programs and curbs regulations that traditionally limited federal funding to for-profit colleges.
The sponsors hope to reduce the role of taxpayers in funding federal public education
What Is Public Service Loan Forgiveness?
The Public Service Loan Forgiveness program is a federal program that forgives federal student loans for borrowers who are employed full-time (more than 30 hours per week) in an eligible federal, state or local public service job or 501(c)(3) non-profit job who make 120 eligible on-time payments over 10 years.
To qualify for Public Service Loan Forgiveness, a borrower must be enrolled in a federal student loan repayment program.
Almost 600,000 borrowers have signed up for Public Service Loan Forgiveness.
Earlier this year, the U.S. Department of Education proposed eliminating Public Service Loan Forgiveness.
Moreover, in a legal filing March 23, the Education Department said that student loan borrowers could not rely on approval letters for Public Service Loan Forgiveness sent by the program’s administrator, FedLoan Servicing, because any approvals are considered tentative.
Public Service Loan Forgiveness was created in 2007 by President George W. Bush to inspire more graduates to enter public service roles.
Benefits For For-Profit Schools
For-profit schools would benefit under PROSPER.
For example, the bill would eliminate the “90/10 Rule,” which says that for-profit colleges cannot receive more than 90% of their revenue from Title IV federal aid.
The bill also eliminates the gainful employment rule, which set minimum thresholds for graduates of for-profit colleges in terms of debt-to-income ratios. Under current regulations, for-profit colleges do not meet the minimum threshold for gainful employment, they would become ineligible for federal aid.
Changes To Student Loan Repayment
Student loan repayment plans would be reduced from eight options to two: a standard, 10-year plan and an income-driven plan.
Under current federal student loan repayment programs such as PAYE and REPAYE, borrowers can cap their monthly student loan payments based on their earnings and then have their student loans forgiven after 20 or 25 years (depending if they have an undergraduate or graduate degree, respectively).
PROSPER would eliminate student loan forgiveness after 20 or 25 years, but cap interest payments after 10 years.
June 2018 Threshold
Neither the proposed changes to Public Service Loan Forgiveness or federal student loan repayment (PAYE/REPAYE) would impact current student loan borrowers enrolled in these programs. Rather, borrowers who enroll in these programs after June 2018 would be the first to be impacted.
Therefore, under this proposed legislation, if you are a student loan borrower enrolled in a federal student loan repayment program who has signed up for Public Service Loan Forgiveness before June 2018, presumably you would still benefit from Public Service Loan Forgiveness.
If you are currently a student loan borrower in school who will not enter a federal student loan repayment program before June 2018, then you would not benefit from Public Service Loan Forgiveness under this proposed legislation.
The same construct would apply to proposed changes to the PAYE/REPAYE student loan repayment programs.
Among other proposals, the House plan would also eliminate origination fees charged for federal student loans, increase the amount of federal student loans undergraduates could borrow (up to $39,000) and limit the amount graduate students could borrow (to $150,000).
Student Loan Refinancing
Student loan refinancing likely would not be impacted by this legislation, since the legislation focuses primarily on the federal government’s role in higher education.
Student loan borrowers can still refinance federal and private student loans as one strategy to repay student loans faster.
What do you think about these proposed changes to student loan forgiveness? We want to hear from you in the comments section below.
More Info: www.forbes.com
Categories: Money Matters