A new brief out of the Urban Institute examines how teachers and social workers can benefit using both the Public Service Loan Forgiveness (PSLF) program and the Biden’s administration’s new income-driven repayment (IDR) plan, the Saving on A Valuable Education (SAVE) plan, when repaying their student loans.
The SAVE plan was launched by the Biden administration in August and is a rebrand and overhaul of the REPAYE plan. While parts of the plan are in effect now — such as a higher income protection, and the elimination of negative amortization, among others — the entirety of the plan will be effective on July 1, 2024.
The author of the brief, Jason Delisle, a nonresident senior fellow in the Center on Education Data and Policy at the Urban Institute, writes that the SAVE plan will “indirectly increase the debt borrowers have forgiven in PSLF because it reduces borrowers’ monthly payments compared with current IDR plans.” As a result, borrowers will pay less of their student loan debt each month as they work toward the 10-year payment mark to receive forgiveness through PSLF.
In his brief, Delisle uses debt and earnings profiles of teachers and social workers, two professions that are likely eligible for PSLF. He compares the results of their estimated payments under the SAVE plan with estimated payments under the current IDR plan with the lowest monthly payments, the Pay As You Earn (PAYE) plan. From there, he estimated what borrowers would repay if they qualify for PSLF after using the current IDR plan or the SAVE plan for 10 consecutive years.
Delisle uses data from the 2017-18 National Postsecondary Student Aid Study to determine the median federal student loan balance among borrowers at the time of degree completion and College Scorecard data to determine median earnings among students completing degrees in teaching and social work at each degree level. Additionally, he notes that his findings are converted to 2023 dollars, and loan forgiveness and payment amounts are converted to 2023 dollars.
Delisle looked at different types of teacher and social worker borrowers, including those who have just a bachelor’s degree and those that also have a master’s degree. For borrowers who just have a bachelor’s degree in education, their estimated initial loan balance is $32,000 after completion. Under the PAYE plan, borrowers would repay $24,358 of that balance, while borrowers repaying with the SAVE plan would repay $6,871 until reaching the threshold for PSLF — a difference of over $17,000.
The difference is less stark for borrowers with a master’s degree in education, whose estimated initial loan balance is $48,000 after completion. Under the PAYE plan, borrowers would repay $37,081 of that debt before reaching PSLF, but under the SAVE plan, those borrowers would repay $26,464 of that debt — a difference of roughly $10,600.
Additionally, borrowers with a bachelor’s degree in social work have an estimated initial loan balance of $32,000. Under the PAYE plan, borrowers would repay $20,117 of that balance, compared to just $4,750 under the SAVE plan, a difference of over $15,000.
Finally, borrowers with a master’s degree in social work have an estimated initial loan balance of $65,000. Under the PAYE plan, those borrowers would repay $38,141, but just $27,525 under the SAVE plan.
These results suggest that students pursuing public service careers, specifically those with just a bachelor’s degree, have new incentives to take on federal student loans and increase the amount they might otherwise borrow, Delisle argues. Even more, he adds that students who do not borrow federal loans but plan to pursue a public service career would “forgo significant benefits” by paying for their education using their own funds.
Delisle notes in the brief that the PSLF program and IDR program are designed to work together. In 2007, Congress created the PSLF program to provide an incentive for talented individuals to enter and remain in public service positions by forgiving their federal student loans after 10 years of payments. Delisle adds that the PSLF program was created as part of the law that also established the first widely available IDR plan.
However, issues have plagued the PSLF program. Borrowers applying for PSLF experienced high rejection rates, Delisle notes, with only about 2% of applicants successfully having their loans discharged under the program’s standard rules. The Biden administration has made efforts to address these issues, including one-time account adjustment to address errors in incorrect payment counts toward PSLF and IDR forgiveness and new regulations for the PSLF program.
Delisle concludes his brief by discussing the policy implications of having expanded PSLF program benefits with the SAVE plan. For example, policymakers may want to examine the current policy that allows graduate students to borrow for the full cost of their degree. Additionally, policymakers may want to consider whether there should be new quality assurance rules to guard against programs “overcharging” for graduate degrees that are for public service careers.
Lastly, Delisle urged policymakers to ensure that the PSLF program is administered in an efficient and fair manner.
“The [PSLF] program has been plagued with confusing rules, insufficient information for borrowers, and a lack of administrative capacity,” Delisle writes. “Although reforms are under way to address these issues, the larger role PSLF is set to play in financing public service jobs has increased the importance of those efforts.”
Publication Date: 9/12/2023