Why PSLF Still Matters After the Latest Forgiveness Announcement

September 21, 2022

Updated 11/28/22: Since this blog post was published, payments and interest on federally-held student loans are now set to resume 60 days after a court decision on President Biden’s forgiveness program. If no decision has been issued by June 30th, 2023, payments will resume 60 days later.

It’s been a banner time for movement on the issue of student loan forgiveness.

First, in October 2021, the Department of Education announced a limited waiver for the Public Service Loan Forgiveness Program (PSLF). PSLF forgives a borrower’s outstanding federal loans after they make 120 monthly payments while working full-time for qualifying employers. However, the program’s 98% rejection rate meant many borrowers suffered setback after setback for years — an issue the Limited Waiver sought to correct by temporarily waiving many of PSLF’s strict guidelines.

Then, in August 2022, the Biden Administration issued an executive order that forgives up to $20,000 in federal loans for qualifying borrowers. These individuals have to earn less than $125,000 a year to receive $10,000 in forgiveness, and borrowers who received Pell Grants will get an extra $10,000 forgiven.

As an HR or benefits leader, these developments may have you confused about how to proceed with student loan assistance benefits for your employee population. Don’t worry! We’re answering the most pressing questions to help you make the best decision for your employees and organization.

Do borrowers who qualify for forgiveness under the executive order no longer qualify for PSLF?

The executive order has no impact on PSLF, so borrowers who meet the criteria for both can get forgiveness and apply for PSLF for their remaining loans.

What exactly does the executive order do for student loans?

While most headlines understandably focused on forgiveness, the executive order aims to provide borrowers with more student loan relief than that. Here are the other proposals included in the order:

  • Launch a new income-driven repayment (IDR) plan that reduces monthly loan payments from 10% of one’s discretionary income to 5%.
  • Forgive loans after 10 years of payments, instead of the current 20 years, for borrowers with balances of $12,000 or less.
  • Increase the amount of income deemed non-discretionary (money that’s needed to cover basic expenses) so no borrower making less than 225% of the federal poverty level will have to make loan payments.
  • Cover borrowers’ monthly interest payments so long as they make payments, even if their income level means their payment is $0.

Lastly, the order includes the final extension of the student loan payment pause, which is set to expire on December 31, 2022.

Given the executive order and limited waiver, should we still offer a PSLF benefit to our employees?

Definitely! To start, the executive order has a $10,000 cap ($20,000 for qualifying Pell Grant recipients), and the average student loan balance is $40,000. That balance is typically even higher for borrowers who work in public service, so PSLF is still the best option for receiving full forgiveness.

It’s also worth noting that the new IDR plan proposed under the executive order actually sets borrowers up for PSLF quite nicely. Borrowers will be enrolled in the right kind of payment plan, which is a requirement for PSLF, and the lower payments will maximize their forgiveness in the end.

Furthermore, the limited waiver is temporary and will expire on October 31, 2022. And while the Department of Education originally determined that the waiver would bring over 550,000 borrowers closer to forgiveness, many eligible borrowers remain confused or unaware of the waiver’s benefits. In fact, according to a report from the Student Borrower Protection Center, nine million public servants are eligible for PSLF but fewer than 15% have even filed the necessary paperwork to get on track for forgiveness.

Clearly, an alarming number of eligible borrowers still have yet to apply for PSLF. As an employer, you can help your full-time employees (who qualify for PSLF) get on the road to forgiveness. Offering a PSLF benefit is a great way to ensure your employees are aware of PSLF as well as the waiver and that they take advantage of the latter.

What happens to PSLF after the limited waiver expires?

After the waiver expires at the end of October, borrowers who want to apply for PSLF will be back to navigating a notoriously difficult process rife with misinformation and mismanagement. Common negative PSLF experiences include colleagues receiving inconsistent messages regarding their employer’s eligibility, borrowers being denied without any explanation, and no clear guidelines for correcting any application issues.

This is where offering a student loan assistance benefit through an end-to-end digital solution like Summer can be incredibly helpful to your organization. It eases the burden for your HR team by giving your employees access to support, expertise, and technology that streamlines the PSLF process and assists them every step of the way. Plus, if new PSLF changes are announced, those experts are ready to help your employees understand what the updates mean for their unique situation.

Is there anything else we should know?

As millions of Americans grapple with mounting financial stress, there’s a growing desire among workers to receive financial wellness benefits through their employers. Per a 2022 report by TIAA, over 50% of Gen X, Millennial, and Gen Z workers believe employers have a responsibility for making sure employees are mentally, physically, and financially well. At the same time, a 2022 survey from PwC found that financially-stressed employees are twice as likely to look for a new job.

Bringing a PSLF benefit to your organization shows your employees that you’re invested in their mental and financial wellbeing. This, in turn, stands to reduce their financial stress while increasing employee performance and retention at your organization — a true win-win.

Schedule a one-on-one demo with our product specialists to see how offering a comprehensive digital PSLF solution through Summer, including the new Forgiveness Eligibility Check tool, can positively impact your employee population.


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