Public Service Loan Forgiveness program is underused

Student debt is the number one financial challenge for many U.S. workers. And substantial debt relief is available, at least to public servants such as teachers, health-care workers, first responders, government workers and others. However, despite wide awareness of Public Service Loan Forgiveness, relatively few public service professionals take advantage of it.

“At a time of COVID-related economic turmoil and uncertainty, some 46 million Americans are paying off $1.7 trillion in student loans, a number likely to grow by $500 billion in the next five years,” according to a new report from AIG Retirement Services.

For teachers, health-care workers and others to qualify for relief, an applicant must have logged 10 years of service and made 120 monthly payments under a qualifying payment plan.

While 90 percent of respondents acknowledge knowing about the PSLF program, 69 percent say they’ve never applied  and an additional 14 percent have begun the application only to leave it unfinished. Others, especially Gen Y and early to mid-career millennials, feel the 10-year qualifying period reduces the value of the program. Additionally:

• 68 percent of respondents are likely or very likely to work toward meeting PSLF qualifications.
• 70 percent have only a “minimal” understanding of the program’s rules and requirements.
• Fewer than 3 percent have been granted loan forgiveness.

Among the key findings of the survey:

1. Public service professionals overwhelmingly value PSLF and would be unhappy if it were eliminated. Public Service Loan Forgiveness is important to eligible employees. Eighty-four percent of study respondents find the program appealing or very appealing, and 69 percent would be upset to see it eliminated.

2. More than two-thirds of borrowers said they’re likely to work toward meeting loan forgiveness requirements. However, the main concerns about the process are worth noting. Many cited the complexity of qualifying as the reason they did not continue the process of applying.

3. Public service professionals say student loan debt is their top financial stressor. Two-thirds of the survey respondents list student debt as their single greatest source of financial stress, with only 40 percent feeling “excellent” or “good” about their personal financial health. Forty-two percent describe their financial stress level as moderate or high.

Debt relief could free up funds for retirement savings and other long-term goals. While 85 percent of survey respondents have retirement savings, only about one-fourth save the maximum permitted and 49 percent have saved less than $25,000.

“Making debt relief more accessible could free up funds for retirement savings and boost retirement plan participation rates — a top priority for employers,” the report concluded. “But getting there and achieving greater adoption of the PSLF program will require employers to help provide the education, transparency and framework public service employees need to successfully navigate the application and enrollment process.”

READ MORE:

• New bipartisan bill would let workers pay student loan debt and receive 401(k) employer match
• Student loan repayment assistance: A benefit that employers and TPAs should take seriously
• Repaying student loans especially stressful for these employees during pandemic