The harsh reality of the student loan debt crisis in America seems to be getting worse by the day — with more than 44 million borrowers now owing a total of more than $1.3 trillion.
But just as some of those people were finally beginning to see the light at the end of their debt tunnel, the Education Department revealed some pretty shocking information.
Imagine thinking that your student loan debt was about to be forgiven — like, in just a few months — and then all of a sudden you get a letter in the mail that basically says, sorry, not happening.
That’s the situation more than 550,000 student loan borrowers are now facing.
What is student loan forgiveness?
The Education Department’s Public Service Loan Forgiveness program (PSLF) was created in 2007 as a way to help borrowers working in certain public service industries and jobs pay off their federal loans.
Under the program, qualified borrowers can get the remaining balance of their student loan debt forgiven after 10 years of on-time payments — while working in one of several public service jobs, including non-profit work, teaching in a public school or working in a public hospital.
The program was actually the reason why many people decided to take on debt to pay for school — knowing if they chose the right field of work and employer, they could get their loans forgiven after just 10 years.
And although only about half a million borrowers are enrolled in the program — or at least think they are — according to one report, about 4 million people with federal student loans are working in public service jobs, and they may not even be aware of the program and that they could be eligible to qualify,
But at this point, they may be better off.
Surprise: You don’t actually qualify for forgiveness
After four borrowers filed a lawsuit when their loan forgiveness eligibility was revoked, the Education Department responded with information that sent a whole lot of people into a panic.
Turns out, the program’s eligibility rules are a lot more complicated than most people realized.
In a legal filing submitted in March, the department stated that a borrower’s acceptance into the program isn’t necessarily binding — and that eligibility could actually be revoked by the government at any time.
The statement also said that borrowers should not rely on approval letters sent by the program’s administrator, FedLoan Servicing, because all approvals are considered “tentative.”
So borrowers who enrolled in the program and filled out the Employment Certification Form, which certifies that you work for a qualifying organization, agency or other company, just found out that any approval from FedLoan servicing “does not reflect a final agency action on the borrower’s qualifications for PSLF.”
Plus, it has apparently also never been quite clear exactly which types of non-profits qualify — so many borrowers were misled to believe that they could have their debt forgiven, when in fact, they were never actually eligible.
Read more: How to refinance your student loans
Now, more than half a million borrowers who were under the assumption that they qualified for forgiveness have no clue how much they’ll actually end up owing. Those who entered the program in 2007 should be getting their debt forgiven this year — starting in October — but whether that actually happens is up in the air.
Another big problem is that it’s only now becoming clear just how complex the program’s rules really are — and since only certain types of federal loans qualify, many borrowers didn’t realize that they needed to restructure their debts in order to officially become eligible.
So even if you received an approval letter, unless you did your own research into your specific loans and whether they could actually qualify, the Education Department is saying you’re pretty much out of luck.
According to StudentAid.gov, here are the federal student loans that qualify for PSLF and what borrowers would need to do if their loans don’t fall into those specific categories:
Loans that qualify for PSLF:
- Any loan you receive under the Direct Loan Program qualifies for PSLF.
Loans that would need to be restructured/consolidated in order to qualify for PSLF:
- Federal student loans under the Federal Family Education Loan (FFEL) Program and the Federal Perkins Loan (Perkins Loan) Program do not qualify for PSLF.
- Borrowers with these loans may become eligible for PSLF if you consolidate them into a Direct Consolidation Loan.
- However, only qualifying payments that you make on the new Direct Consolidation Loan can be counted toward the 120 payments (10 years) required for PSLF.
- Any payments you made on the FFEL Program loans or Perkins Loans before you consolidated them don’t count.
- If you have both Direct Loans and other types of federal student loans, you would need to consolidate them in order for all of your federal student debt to qualify for PSLF.
- But, once you consolidate your Direct Loans with your other loans, you will lose credit for any qualifying PSLF payments you made on your Direct Loans before they were consolidated.
- In this situation, you should continue paying your existing Direct Loans and only consolidate your other federal student loans in order to make those eligible for forgiveness.
What student loan borrowers need to do
If you’re already signed up for the Public Service Loan program, and you work for a 501(c)3 non-profit organization or for the government, you should continue filling your paperwork and making payments on time.
If you’re still in school or considering a job that qualifies for the program, make sure to keep up with any new updates and/or changes made by the Education Department. There could be changes made to the qualification rules, amount of debt eligible for forgiveness and other aspects of the program. In fact, the program could be eliminated completely, but until changes are actually made, just be sure to do your research!