5Things About Public Service Loan Forgiveness
A report on how thousands of doctors and white-collar workers stand to have huge sums of student debt forgiven under an eight-year-old federal program has drawn a slew of comments on the program’s history and rapid growth. Here are five things to know about the program.
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The Public Service Loan Forgiveness program was passed by a Democratic-controlled Congress in 2007 and signed by Republican President George W. Bush. It was part of a broader bill known as the College Cost Reduction and Access Act, which also increased Pell Grant funding and cut student-loan interest rates.
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The program is designed to encourage Americans to pursue hard-to-fill jobs in government and the nonprofit sector, including public defenders, teachers, social workers and modestly paid doctors in underserved communities, such as rural areas.
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The individual benefits are potentially big. To qualify, borrowers must certify with the Education Department that they work for a government agency at any level or for a nonprofit. Borrowers set monthly payments as low as 10% of their discretionary income, defined as adjusted gross income minus 150% the poverty level. After 10 years, any remaining balance is forgiven, tax-free. This will translate into tens of thousands of dollars in forgiveness for many borrowers.
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Enrollment is surging. As of September, 295,000 Americans had signed up for the program and were on track for forgiveness, the Education Department says. An estimated 600,000 total are expected to receive forgiveness over the next decade.
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Both parties are scrutinizing the program. President Barack Obama has proposed, as part of his budget, to cap the amount that any individual can have forgiven at $57,500. His administration has cited concerns raised by some think tanks that many white-collar borrowers who don’t need the help will have loans forgiven. The change would require approval by Congress, which hasn’t taken up the proposal. House Republicans indicated earlier this year they would look at eliminating the program as part of broad government-spending overhauls, but they haven’t moved on that.
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