Episode 05 Why Your Student Loan Probably Won’t Be Forgiven
Minute [1:30] We need to talk about Public Service Loan Forgiveness (PSLF) because so many people go into debt believing they will not have to repay their debt in full. This is not correct. Creditors expect to be repaid.
Minute [2:30]: There are some loans that will be forgiven in part if certain conditions are met, e.g. teachers teaching in certain designated schools can have up to $5000 of direct loans forgiven if they have made five years of payments, in full and on time.
Minute 4:30-8: Let’s talk about Richard Fossey’s 2017 book, The Student Loan Catastrophe Postcards from the Rubble, where he discusses at length the problems with PSLF programs, including subsidizing people getting degrees in fields that are overcrowded. Why should Americans subsidize people getting an education in an overcrowded field? Of course, people who have a degree in an area that requires professional licensing cannot practice their profession without the license. In 2016, more people failed the California bar than passed it, i.e. the majority of people in law school thinking they could avail themselves of a PSLF program could not pass the bar. Therefore, they could never meet the conditions required to get their loan forgiven.
Minute [8:15]: Why don’t PSLF programs benefit people pursuing only an undergraduate degree?
- Not all loans qualify to be forgiven (if the loan has the word Direct in its name, it likely qualifies for PSLF, but private loans do not qualify and Parent PLUS loans don’t qualify; there are many more non-qualifying loans than there are qualifying loans);
- You work in the proper type of profession; and
- Pay your loan in accordance with an approved Income-Based Repayment Plan (ICBR) for a ten year period to the proper loan servicer, then and only then may your remaining loan balance be forgiven.
Notice the use of the word “may.” This does not say that if you do everything right, your loan “shall be forgiven.” If you do everything “right” today, you cannot know if your loan will be forgiven. It might be and it might not be.
You have to use an ICBR or your loan will be paid in full at the end of ten years and there will be nothing left to forgive; however, since you are not paying your loan in full, the amount of interest on the unpaid balance will be much, much greater than if you were making timely, in full payments, i.e. if your loan isn’t forgiven after 10 years, it will be a much larger amount than if you were paying it in accordance with the loan terms.
I think it is likely that they PSLF program will be modified/ended sooner rather than later. Public service was so broadly defined in the enabling legislation that it encompasses 25% of the American workforce and often the highest paid professions. It makes no sense as public policy. If you are thinking you will use this program to pay for your college education and you have not yet enrolled, I think this is a particularly poor life plan.
Follow Richard Fossey at his blog Condemned to Debt.
If you want another viewpoint on student loans, check out this video Student Loan Debt Slavery with Stefan Molyneaux. Stefan is not particularly sympathetic to people to take on all this unpayable debt, but he does recognize the magnitude of the problem.