Public Service Loan Forgiveness may be pricier to access after changes

It may be more expensive for some student loan borrowers to access a popular debt forgiveness program, after a new policy rolled out by the Trump administration.

Borrowers who were using the so-called buyback option to get their debt cleared under Public Service Loan Forgiveness will likely be subject to a higher bill, as a result of the changes.

PSLF, which Congress created and President George W. Bush signed into law in 2007, allows certain not-for-profit and government employees to have their federal student loans canceled after 120 payments, or 10 years.

PSLF Buyback, meanwhile, was created by the Biden administration, and allows borrowers who have hit 120 months of qualifying employment to submit a request to the U.S. Department of Education to retroactively pay for any months they missed because of a forbearance or deferment.

Here’s why “buyback” offers may become more expensive, and what borrowers can do about it.

After you have submitted your buyback request, the Education Department is supposed to send you an offer letter. That should include the number of monthly payments you missed during your public service history, and a chance to pay that bill in exchange for student loan forgiveness.

The reason borrowers may now have to pay more for that relief: The department says it won’t calculate borrowers’ offers using the Saving on a Valuable Education, or SAVE, plan if their deferment or forbearance was on or after July 1, 2024.

The Biden administration-era SAVE plan, which was officially blocked by a federal appeals court in March, came with much lower monthly payments than other repayment plans. Under the SAVE plan, monthly payments were based on as low as 5% of a borrower’s discretionary income. For comparison, the Income-Based Repayment plan takes 10% — and that share rises to 15% for certain borrowers with older loans.

“Coming up with high payments may possibly prevent people from using buyback, or them having to dip into savings or even borrow from family or friends to pay for it,” said Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York City.

Recently, one EDCAP client would have owed around $30,000 in payments based on his income and the IBR plan, Rodriguez said. That made pursuing the option unfeasible, she added.

Many borrowers are trying to get credit toward PSLF since the summer of 2024. That’s when borrowers enrolled in SAVE were placed into an administrative forbearance, while the legal challenges played out. Typically, student loan borrowers make progress toward PSLF only if they’re actively making payments on a qualifying plan.

SAVE enrollees have been slow to exit: Roughly 7.2 million people remained in the program as of December, according to recently released agency data.

Borrowers have already been struggling to get a buyback offer: More than 88,000 borrowers are waiting for a decision from the Education Department on their application, a number that has only swelled in recent months.

CNBC has spoken to some borrowers who requested the relief over a year ago and still haven’t heard back.

Although buyback offers are likely to be pricier now, it doesn’t hurt to apply for it and have the option, said higher education expert Mark Kantrowitz. In fact, borrowers who haven’t already requested the relief should do so as soon as possible, he said.

“The slow processing of the backlog means that there will be delays,” Kantrowitz said.

Once you get your offer, you’ll want to compare the monthly payment amount calculated by the Education Department against your monthly payment amount going forward under the most affordable repayment plan available. (That’s likely the Income-Based Repayment plan or, starting in July, the Repayment Assistance Plan, Kantrowitz said.)

Your monthly payment amount under your buyback offer may be lower if your income during the forbearance or deferment was less than it is now, he said. (Still, you might not be able to afford a large lump sum payment.)

If your calculated payments going forward under the qualifying plan are lower than on the buyback offer, you should definitely start making payments until you’ve hit the necessary 120 to get PSLF.