Should we Repeal Public Service Loan Forgiveness?
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KEY SOURCES
Brookings Institution
CATO Institute
Congressional Budget Office
Bureau of Labor Statistics
Maurer School of Law
Journal of General Internal Medicine
Consumer Financial Protection Bureau
Buffalo Law Review
Journal of General Internal Medicine
WHY THIS QUESTION MATTERS:
Want to have your federal student loans forgiven by the government? Work in public service.
While overly simplistic, this is the basic premise behind the Public Service Loan Forgiveness (PSLF) program, which was created in 2007 under the Bush administration and then expanded under the Obama administration.
The program is intended to incentivize college and graduate school students to pursue careers in a qualifying public service organization, which includes jobs in government or nonprofit organizations. The federal government will forgive direct student loans after 10 years of service and 120 monthly payments against the loan.
However, the costs of the program are much higher than initially expected and the newly released 2021 budget proposes eliminating the program.
HOW IT STARTED.
When the Public Service Loan Forgiveness program was established in 2007, the general concept was pretty simple. As a “thank you” for providing a public service, the federal government would forgive all student loans. Rather than tying the public service to specific jobs, like teaching or nursing, the qualification for public service is tied to your employer. For example, a nurse that worked for a nonprofit hospital would qualify for the PSLF program while a nurse that worked for a for-profit hospital would not qualify.
The intent was to drive talented graduates to work for government and nonprofit organizations. According to the Department of Education, qualifying organizations include “U.S. federal, state, local, or tribal government or nonprofit organizations.” Exceptions to this are any nonprofit labor unions or partisan political organizations.
At its inception, this definition of public service sector meant that 1-in-4 U.S. workers were employed by a qualifying “public service organization.”
HOW IT WORKS
If you could prove that you worked in the public service sector for 10 years and made 120 consecutive payments toward your federal student loan balance, the remainder of your loans would be forgiven.
Those 120 loan payments would be determined based on income. Meaning, an individual’s monthly loan payment would be caped as a fixed share of their income. For example, if an individual has a gross income of $45,000, the income-based repayment would allow her to pay $227 per month toward their loan instead of $530 per month on a traditional 10-year repayment.
WHAT’S HAPPENING NOW?
Today, the Department of Education is acting as a trillion-dollar bank with 40 million student borrowers. The funding is so expansive that the government has been forced to outsource call center and paperwork to various third-party companies.
In the newly released White House budget proposal, the 2021 budget for the Department of Education is 7.8% lower than the current year. One of the proposed cuts was the Public Service Loan Forgiveness program.
What are the implications?
THE COMMON THREAD
Both sides say they want to see individuals partake in jobs that add value to the community.
FIND YOUR THREAD:
Supporters of ending the program say that the federal government is currently incentivizing excessive borrowing and pushing people into career paths that may or may not provide greater public service than traditional employment. Opponents of ending the program say that PSLF is vital to attract and retain talented individuals in the public service sector, which may not be able to attract graduates due to lower salaries.
Yes, repeal Public Service Loan Forgiveness (PSLF).
Reason 01
The PSLF program primarily benefits higher income individuals.
Debt relief for student loan borrowers only benefits those who have gone to college. But why are those who went to college more deserving of aid than those who went straight into a nonprofit career? Especially when individuals with a college degree generally earn more than those who didn’t go to college. (Brookings Institution)
For those who do attend college, not all federal aid programs are created equal. PSLF beneficiaries, who are typically highly-educated, white collar workers, generally receive 70% more benefits than Pell Grant beneficiaries, who represent some of our most economically disadvantaged students. (Brookings Institution)
Even if the employee could have afforded the loan payments independently, the government will absorb the cost of loans from public sector employees. That’s why the “bulk of the benefits” go to the top 40% of households who make $75,000 or more per year. (Brookings Institution)
Reason 02
The program incentivizes excessive borrowing and increases burden on taxpayers.
PSLF beneficiaries have some of the highest loan balances in the federal student loan program, as it’s being used as a de facto loan forgiveness program for graduate students to borrow without limit. The median debt load of those enrolled in PSLF exceeds $60,000, and nearly 30 percent of PSLF enrollees borrowed over $100,000. (Brookings Institution)
The burdens of these excessive loans are passed on to taxpayers -- many of whom have not gone to college, or may work in struggling for‐profit businesses, or may even have thought the right thing to do was to get an inexpensive—and frill free—education. (CATO Institute)
The newly projected costs of the program are more than double what the Congressional Budget Office originally expected. (CBO + Brookings Institution)
Reason 03
There is no clear evidence that the program is incentivizing the right work.
Why do we assume nonprofit work is somehow more beneficial than for-profit? There is nothing more noble about working for government, or a nonprofit hospital, or even a think tank, than owning a neighborhood shoe store, or being an accountant at Apple, or risking all you have on a new, entrepreneurial venture, all of which seek to offer things of value to other people. (CATO Institute)
In addition, there is sometimes little difference in pay for people working similar jobs in nonprofit and for-profit jobs. In fact, a Bureau of Labor statistics study found that total compensation for individuals in the service industry is actually higher at nonprofits than for-profit businesses. So why would PSLF only benefit those in the nonprofit space? (CATO Institute and Bureau of Labor Statistics)
No, let’s keep Public Service Loan Forgiveness (PSLF).
Reason 01
The PSLF incentives graduates to join public service jobs, even if the pay is lower than in the private sector.
The PSLF not only encourages graduates to enter public service but it also creates incentives for some of our strongest students to stay for the long haul as 10 years of service are required to be eligible for loan forgiveness. This type of longevity in a single career is rare in the modern economy. (Maurer School of Law)
The need for talented graduates to enter public service careers is critical, especially for talented lawyers representing individuals without the financial means to afford help from a private practice and must rely on public defenders. (Maurer School of Law)
Reason 02
Helps professionals afford graduate and professional school.
Becoming a doctor in the US is increasingly expensive. Under PSLF, graduates are offered complete loan forgiveness after 120 qualifying monthly payments while employed at public or nonprofit institutions, including payments made during residency for physicians. (Journal of General Internal Medicine)
Without PSLF, individuals may not pursue graduate education even though evidence suggests that many professions in the nonprofit segment of the workforce require advanced levels of education. (Consumer Financial Protection Bureau)
Reason 03
The PSLF program should be adjusted, not eliminated.
Rather than eliminating the program, the ballooning costs of the PSLF program could be addressed by limiting overly broad “nonprofit” eligibility criterion. (Buffalo Law Review)
A 2013 estimate from the Consumer Financial Protection Bureau estimated that 1-in-4 U.S. workers were employed by a “public service organization,” as defined by the federal Public Service Loan Forgiveness (PSLF) program. (Consumer Financial Protection Bureau)
More targeted measures of loan forgiveness could be considered, such as making forgiveness contingent on pursuing specialties that society needs or practicing in shortage areas. (Journal of General Internal Medicine)
Updating scope may be more palatable than eliminating the program altogether given that hundreds of thousands of borrowers entered public service partly due to the promise of student loan debts forgiveness. (Buffalo Law Review)
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