More free stuff that kinda isn’t🤑
A new Brookings report out from American Enterprise Institute scholar Jason Delisle examines the Public Service Loan Forgiveness (PSLF) program—a little-known facet of the student loan program with a potentially significant effect on the budget. PSLF allows student borrowers who work in government or at most nonprofit organizations to discharge their student loan debt after making ten years’ worth of qualifying payments.
As the program went into effect in 2007, the earliest an eligible borrower could receive loan forgiveness is 2017. Hence, we do not yet have hard data on how much PSLF costs taxpayers. But Congressional Budget Office analyses of proposed reforms to the program, obtained by Delisle and detailed in his new report, show that the losses to taxpayers could be far greater than originally anticipated.
One proposal, to cap discharges under PSLF at $57,500 per borrower, was estimated to save $265 million in 2014. That estimate has since risen 25-fold to $6.7 billion. Another proposal would remove a feature of loan repayment plans that caps payments at lower amounts, thereby increasing the potential amount of forgiveness once the borrower reaches the ten-year PSLF threshold. That proposal, originally scored at $135 million, has seen its estimate rise 40-fold to $5.4 billion. In technical terms, this is what’s known as a “doozy.”
According to CBO’s estimates, the PSLF program has grown from a footnote to a major budget drain in a matter of years. Around a quarter of the workforce holds a position theoretically eligible for PSLF, according to Delisle’s report.
Why the cost explosion? First, enrollment is much higher than anticipated. Just four years ago, just 26,000 borrowers were certified for PSLF. Now, that number is over 430,000.