Full participation of the Public Service Loan Forgiveness (PSLF) waiver program would narrow the racial gap in student debt burden and largely benefit teachers and health care workers, found a new working paper published in the National Bureau of Economic Research.
The paper, authored by Diego Briones, Nathaniel Ruby, and Sarah Turner, explores full participation in loan forgiveness enabled by the PSLF waiver program using data from the 2018 Survey of Income and Program Participation.
The paper states the PSLF program since its start in 2007 has been “illusory” for many, since only 96 borrowers claimed benefits in 2017, which was the first year of eligibility for forgiveness, and by the start of 2022 only 84,163 had received benefits.
The first PSLF waiver was introduced by the Department of Education in 2018, with additional temporary waivers in October of 2021, due to issues with certification of public service employment and the determination of qualifying loans and payments under the regular PSLF program.
Additionally, in April this year the department announced a one-time adjustment to count some borrowers’ accounts in long-term forbearance toward PSLF forgiveness — which resulted in immediate forgiveness for about 40,000 borrowers.
“The tangled web of repayment options confuses borrowers, and financial aid administrators have long advocated for ways to improve the repayment process, including by strengthening the PSLF program, standardizing loan servicing policies and procedures, and providing standard consumer protections for federal student borrowers that are in line with other consumer financial products, to name a few,” NASFAA President and CEO Justin Draeger said in a statement in April.
The paper estimates that full participation in the PSLF waiver program, which expires at the end of October, would account for over $100 billion in loan forgiveness available to as many as 3.5 million borrowers.
Additionally, those who would benefit from the PSLF waiver program are disproportionately employed in teaching and health care. Teachers make up over 23% of potential PSLF recipients, according to the paper, followed by nurses and related health assisting occupations at about 10%. Other workers include firefighters and police officers at 4%, social workers at 6.1% and physicians at 1.9%.
Black Americans are also likely to benefit from the PSLF waiver program, which could substantially close the racial gap in student debt burden, the paper states. Black Americans are more likely to hold student debt, at 28.6% compared with 19.8% for white Americans.
And while Black and white borrowers are similarly likely to be potentially eligible for PSLF forgiveness, Black borrowers can expect a higher level of forgiveness, with the mean relief expected to be $47,903. That’s compared to white borrowers, who can expect to receive about $38,840 in forgiveness. The paper states Black borrowers would be expected to receive about 22% of immediate PSLF debt relief even though they are a smaller share of the eligible borrower count.
“Overall, the take-up of PSLF waivers would likely have a significant impact on the economic security of many American workers with student loan debt,” the paper states. “As we show, there is likely well over $100 billion at stake for as many as 4 million borrowers. While not an erasure of student loan obligations, take-up of the PSLF waiver would provide substantial relief for public service workers with substantial labor market experience.”
The paper notes that the ultimate impact of the PSLF waiver depends on both the underlying distribution of eligible workers in the government and non-profit sectors and the extent to which those borrowers complete the PSLF applications and use its benefits.
Additionally, the paper states that the continuation of the student loan repayment pause could be a hindrance, rather than a help to efforts to increase PSLF participation.
“With more than two years without loan payments (and even some expectations of a continuation of the pause), eligible borrowers may postpone the actions needed to file the PSLF waiver or make associated changes like loan consolidation or a shift in repayment plans,” the paper states. “In an environment with loan repayments paused and some popular discussion of across-the-board forgiveness, behavioral biases of ‘time inconsistency’ and ‘loss aversion’ may further attenuate take-up.”
The paper notes that while the media and general public discuss the pros and cons of broad-based student loan forgiveness, PSLF waivers could serve as a solution that’s already in place.
“Yet, unlike hypothetical policies like forgiving $10,000 or $50,000 of federal student loan debt, the PSLF waiver program is in place, until its expiration on October 31, 2022,” the paper states. “The ultimate impact of the PSLF waiver depends on both the underlying distribution of eligible workers in the government and non-profit sectors and the extent to which individuals complete applications and take-up benefits.”
Publication Date: 7/11/2022