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Capping Public Service Loan Forgiveness at $57.5K Defeats Its Purpose

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If you work as a teacher, an employee of a non-profit or one of a multitude of other jobs, you could soon be in for a rude awakening with regard to your student loan situation.

The proposed 2015 budget, which has yet to be put in front of Congress, contains a provision that puts a $57,500 cap on Public Service Loan Forgiveness (PSLF); a nightmare scenario for many who had been working toward full loan forgiveness. If such a cap passes, I predict two things will happen:

  • Tens, if not hundreds of thousands of people who were counting on PSLF will potentially incur unanticipated debt, extending the already slow recovery of the economy, especially regarding home-buying.
  • An untold number of Americans will be forced to think twice about obtaining an advanced degree, sliding the U.S. even further down the competitive world education scale.

For those unfamiliar with PSLF, the program began in 2007 and provides for those who work in "public service" (defined in this case as a government worker, an employee of a 501c(3) non-profit or a teacher) to achieve federal student loan forgiveness after 120 monthly payments. Basically, it allows people to go on income-based repayment programs, and if they hold public service jobs, whatever is left of their federal loans is forgiven after a decade of payments. Unless, of course, the current budget proposal for PSLF passes, and the forgiveness will be capped at $57,500, which will have extraordinarily harsh effect on an already near-burst student-debt bubble and a struggling higher-education rate in the U.S.

Okay, I know what you're thinking right now: $57,500 is a lot of money.

I don't deny that it is, but it would be disastrous to cap PSLF at such a level. My own story demonstrates why:

I really thought I did everything right.

I attended a state school for my bachelor's degree and received a partial scholarship, working part-time all four years. I didn't live on campus, because it cost too much money. After graduation, I served in the Peace Corps, and when I came back to the States, enrolled in a respected graduate school. I chose it over top five schools because it was cheaper, but still in the top 10. During grad school, in a market that encourages free intern labor, I only accepted paid internships, and only took out enough in student loans to cover tuition and keep a roof over my head. Regardless, after accruing interest while abroad and paying for a graduate education, I found myself in $100,000 of debt (more than half of it my graduate tuition alone).

I knew what getting a master's degree was going to cost me, and I carefully planned how to make it work after graduation. In my case, and in the case of thousands of my generation, PSLF was the only option that made financial sense. After I graduated last May, I applied for 75 PSLF-eligible jobs and finally got one. I make slightly over $50,000 per year, and my corresponding income-based payments are about $430 per month. If I were on the regular 10-year repayment program and not an income-based plan, my payments would be nearly $1200 per month (which is half my take-home salary).

Thank goodness for income-based repayment plans, right!? Well, now we get to the fun part.

Of my $430 per month, a whopping $16 goes to the principal. The rest is interest, because interest on a hundred grand is fat. This year, $192 will go towards the principal of my $100,000 in loans.

If you haven't noticed, this won't add up to much over time. Despite the fact that I anticipate earning more money in the next 10 years, there is no way I'll make enough to bring my debt down to under $57,500 total. I was counting on PSLF to give me relief after 10 years of payments, and if the cap passes, I might be obligated to pay for another 15 years. The scary part is, I don't even owe that much. Lawyers and doctors often come out of school with between $200,000 and $300,000 in debt after being forced to go to expensive schools to be competitive enough to get a job at all.

Worst is that the provision currently makes no mention of grandfathering anyone in to the original PSLF terms. There are people who started their public service careers in 2007 or 2008 to take advantage of the program and now the carpet could potentially be pulled out from under them. No one has even been able to see the fruits of the program because 2017 is the first year anyone would be eligible for forgiveness. Without a grandfather clause, everyone who was relying on PSLF will be out of luck, and back in a degree of debt that will severely affect their future financial choices and capabilities. People have planned their lives around this program, and ¾ of the way to what they thought would be freedom from debt, they could be left with loans nearly as large as when they began paying in the first place.

If this proposal passes as is, I fear the benefits of education will not outweigh the burden of debt for most Americans. Education is a key component to the economic success of a country, but in America, it is becoming a more of a financial hindrance than a career gain.

PSLF is one of the only programs that makes it possible for people whose parents couldn't substantially offset the cost of education to obtain advanced degrees and not default on payments. The proposed provision will negate its value, and people will notice. Fewer people will choose to obtain higher education.

PSLF was created to drive people to pursue public service careers as teachers, social workers, public defenders and doctors, among others. Ironically, if forgiveness is capped, it might not be worth $57,500 to become one.

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