Personal Finance

What borrowers need to know about Biden administration's reforms to the public service loan forgiveness program

Key Points
  • Many borrowers are finally due to get their student loans excused under the public service loan forgiveness program, after reforms by the Biden administration.
  • Here are the steps you should take to make sure you're included.
U.S. Secretary of Education Miguel Cardona.
Bloomberg | Bloomberg | Getty Images

After making payments on her student loans since 2005, Karen Tongson is finally free of her debt.

In November, Tongson, an English and gender studies professor, signed into her loan account and discovered her balance had fallen from $47,000 to $0, thanks to the public service loan forgiveness program.

That program, signed into law in 2007 by then-President George W. Bush, permits nonprofit and government employees to have their remaining federal student loans canceled after 10 years, or 120 payments.

However, the program has been defined by problems and rejections, with borrowers often believing they're paying their way to loan cancellation only to learn at some point in the process that they don't qualify, often for wonky and unclear reasons. Lenders have been accused of misleading borrowers and miscounting their qualifying payments.

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"I noticed that a lot of payments I made weren't counted," Tongson, 48, said. "And I never understood why."

Tongson's surprise last fall came as a result of fixes the Biden administration has been making to the loan program. It has reassessed borrowers' applications and recounted their payments, and it estimates that more than 500,000 people may now be closer to loan forgiveness.

The U.S. Department of Education also refunded Tongson $20,000 for her years of overpayments, and many other borrowers are likely due refunds, as well, experts say.

Here's what borrowers should know about the program's updated rules.

How are payment counted now?

To get your student loans forgiven under PSLF, you need to have made 120 payments over 10 years while working a public service job.

The problem the Biden administration is working to fix is that many borrowers are told by their lenders that they've made fewer payments than they actually have, or that some of their payments aren't counted for technical reasons, such as the type of federal loan they hold or being late one month.

To give people the proper credit for their payments, the administration is now looking not at the number of your qualifying payments but the months that you've been in repayment, said Elaine Griffin Rubin, senior contributor and communications specialist at Edvisors.

Even if you haven't been making payments throughout the government's pandemic pause on student loans, those months still count toward public service loan forgiveness, Griffin Rubin added.

"Payments made in any federal student loan program under any repayment plan can count," said Mark Kantrowitz, a higher education expert. "This includes partial payments and late payments."

How do I make sure I benefit from the new rules?

You want to act as quickly as possible, Kantrowitz said. That's because the Biden administration's new rules for public service loan forgiveness are slated to expire Oct. 31, 2022.

If you have either a Federal Family Education Loan (FFEL) or a Federal Perkins Loan, which don't normally count for public service loan forgiveness but now temporarily do, you'll need to consolidate those into direct loans with your servicer.

"It typically takes 30 days to 45 days for the consolidation to occur," Kantrowitz said.

"Borrowers should do this even if they don't expect to have 120 payments by the deadline, as the previously ineligible payments will count only if they do this," he added.

Biden extends moratorium on student loans till May 1, 2022
Biden extends moratorium on student loans till May 1, 2022

In addition, borrowers will also have to prove that their work was considered public service for any stretch of time that they're trying to get counted toward forgiveness. To do so, you'll want to file with your servicer a so-called employer certification form for each employer you've had throughout your timeline.

Borrowers currently jobless or not working in public service may still qualify for forgiveness now, so long as they've made 120 qualifying payments in the past, Kantrowitz added.

Some borrowers seem to be getting forgiveness automatically after the government's auditing of these accounts, but going through these steps will make sure you benefit from the new rules.

Will I get a refund?

"Any payments made over 120 will be automatically refunded as long as those extra payments occurred after consolidation," said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.

If some of your payments didn't qualify for another reason than an illegible loan type, you should still get a refund as long as you've hit those 120 payments.

The refunds shouldn't have any tax implications, Mayotte said.

"However some states do tax the amount forgiven under PSLF," she added.