The Lie of Public Service Loan Forgiveness
With the 2020 presidential campaign heating up and voters becoming more polarized by the hour, I have found an issue that we can all rally around. It's a problem that both republicans and democrats are culpable for leaving unaddressed, and one that will likely remain unaddressed no matter who wins the White House next year: public service loan forgiveness.
The Public Service Loan Forgiveness Program, which promises to cancel any outstanding student debt for those who serve ten years in public service and make ten years worth of on time loan payments, was created under the College Cost Reduction and Access Act of 2007 as a way to incentivize more people to consider a career in public service and help indebted graduates chart a course towards financial independence. Unfortunately, that’s not what has been happening.
After graduating from Brown University with a graduate degree in public policy, I knew I would be entering some form of public service. I have always been interested in government, and drawn to the good that can come from effective governance. However, I was not naive to the financial sacrifices that come with working in the public sector. For instance, the reality that public sector positions pay less than what is rewarded in the private sector. This didn’t bother me; money has never been what motivates me, and it isn’t what motivates many public servants. What motivates us is the pride of working for the people. Whether it’s local, state, or federal government, public servants are proud of the work they do and believe their efforts, ultimately, advance the well-being of the public. (I am saddened by how many people I run into that are shocked when they discover I turned down a career on Wall Street to work for the Federal Government.) Having said this, I must admit that when I heard that there was a federal program that could help me eliminate a significant portion of my six figure student loan debt by entering public service—which I planned on doing anyway—I was thrilled. Suddenly those monthly payments, which would consume half of my take home pay, didn’t seem so disconcerting.
But after thoroughly researching the Public Service Loan Forgiveness program, talking to loan processors at FAFSA, and performing other due diligence, what I discovered was a rather toxic, deceptive, and financially sinister ploy to con those who don’t fully understand debt repayment.
For example, in order to be eligible for debt forgiveness, graduates have to be enrolled in an income driven repayment plan, regardless of their actual take home pay. Now for most people this isn't a problem, in fact it's preferable; many income driven plans have payments as low as $0 per month. But what is concerning is that even those who can afford standard repayment plans, which have much larger monthly payments but allow borrowers to pay down more principal, are forced to switch to an income driven repayment plan in order to qualify for the program.
You would think the government would want borrowers to pay down their debt as soon as possible so they can go on to start a family, buy a home, or begin saving for retirement, but that doesn't seem to be the case. Conversely, borrowers don't seem to be all that concerned with paying down principal either. Many have the mindset that “if the government is going to pay off my student debt, why should I pay more than what is minimally required during the ten-year period?"
And here is where the real problem lies. Of all the public servants who applied for loan forgiveness, only one percent have been successful in discharging their debt. Whether borrowers have the wrong loan, wrong employer, or wrong repayment plan, the Department of Education uses any and all reasons to throw out an application for forgiveness, leaving many borrowers in the same (or worse) financial state than when they began making payments.
So as we think about this issue, and its relationship to the 2020 election, we need to acknowledge a few things. First, President Trump and congressional republicans want to cut this program entirely; we need to remind them that this was a bipartisan initiative passed under President George W Bush and it can achieve the goals it set out to, assuming some sensible improvements are made. Second, presidential candidates need to put forward real student debt proposals. Simply stating they will discharge all student debt if they are elected is politically lazy and morally suspect. If a candidate wants to cancel $1.6 trillion in student debt, they should outline how they are going to pay for it, and acknowledge that such an act would have to be repeated down the road since cancelling current student debt does nothing to fix the root cause of student debt: unaffordable higher education. Last, voters should realize that the likelihood of Congress getting on the same page with regard to free college tuition is somewhere between slim and none—it just isn't going to happen. But, that doesn't mean we can’t improve things. We can start by reducing student loan interest so borrowers can pay off their debt faster; we can beef up the purchasing power of Pell Grants so students don't have to take out as many loans in the first place; and we can force Congress to honor its promise of debt forgiveness to the thousands of public servants who work to make our lives better.
We need talented public servants. But tricking people into public service by dangling debt relief in their face, only to pull it away at the last minute, isn't good public policy; it’s just another reason for people to lose faith in government.