The Consumer Financial Protection Bureau (CFPB) is “encouraging” student loan servicers to identify their military borrowers in order to conduct proactive outreach encouraging them to consolidate their loans and submit applications for forgiveness under the Public Service Loan Forgiveness Program (PSLF).
Servicemembers (and any other eligible public service applicants) must apply for PSLF by October 31, 2022 to be considered for relief under a limited waiver that temporarily relaxes program rules allowing more borrowers to qualify. In October 2021, the Department of Education (ED) announced that certain program rules under the PSLF would be waived for a limited time due to the COVID-19 emergency. Normally, only borrowers with Direct Loans who have made on-time payments on their loans and are employed full-time at the time of application would be eligible. Under the limited waiver, borrowers who consolidate Perkins or Federal Family Education Loans (FFEL) into Direct Consolidation Loans in advance of the deadline may receive credit for periods of repayment on those loans, even if they have been late on payments or were not on a qualifying repayment plan, such as an income-driven repayment plan. Additionally, borrowers may be eligible for forgiveness even if they are not employed by a qualifying employer at the time of application and forgiveness. (Some requirements are unchanged, such as the need to make 120 qualifying payments and full-time qualified employment with the government, a 501(c)(3), or other qualifying not-for-profit.)
In a new blog post published on July 25, the CFPB highlighted the upcoming deadline for servicemembers to consolidate their federal loans and seek forgiveness under the limited waiver. It cited two of its own reports from 2012 and 2015 regarding servicing issues allegedly experienced by military borrowers and a 2020 GAO report that found 176,906 active-duty servicemembers had federal loans eligible for the PSLF program (or that could be made eligible through consolidation), but that only 124 servicemembers had received forgiveness. In the new blog post, without explanation as to where this additional servicing obligation arises from, the CFPB concludes that servicers must conduct additional outreach to increase the rate of servicemember participation in PSLF, including through loan consolidation.
According to the CFPB, “[w]ith servicemembers’ loan forgiveness hanging in the balance, servicers must use all the tools at their disposal to identify military borrowers and ensure they get the credit towards PSLF they deserve under the program.” (emphasis added.) To accomplish this, the CFPB is “encouraging” federal student loan servicers to identify military borrowers in their portfolio, as they would to review for borrowers who may be covered under the Servicemembers Civil Relief Act (SCRA), and conduct outreach and provide assistance to those with FFEL or Perkins Loans who may be able to qualify for PSLF by consolidating those loans owned by third parties into Direct Consolidation Loans. A June 2022 letter from former CFPB Director and current Federal Student Aid Chief Operating Officer Richard Cordray advised “Fellow Public Service Worker[s]” that they “may have a chance to clear out your student loans” and to act soon. It should also be viewed in the larger context of broader student loan forgiveness being considered by the Biden Administration and the hold on federal student loan repayments, which has been in place since March 2020 but will expire on August 31, 2022, unless extended. (Qualifying PSLF applicants will receive credit for periods of this COVID-19 Administrative Forbearance as if they had made on-time monthly payments.)
More than a dozen bills have been introduced in Congress this session regarding public service loan forgiveness, including S.4345, the “Simplifying and Strengthening Public Service Loan Forgiveness Act,” which seeks to codify many of the changes from the limited waiver and also cut the period of time a borrower must work in public service in half (from ten years to five), and H.R.3486, the “Recognizing Military Service in PSLF Act,” which would require ED to count periods of deferment or forbearance during active duty as qualifying periods. To date, none of the bills have made it out of committee.