Order Code RS22762
November 26, 2007
Loan Forgiveness for Public Service
Employees Under the William D. Ford
Direct Loan Program
David P. Smole
Specialist in Education Policy
Domestic Social Policy Division
Summary
The College Cost Reduction and Access Act of 2007 (CCRAA; P.L. 110-84)
establishes a new loan forgiveness provision for borrowers of loans made under the
William D. Ford Direct Loan (DL) program who are employed in public service jobs for
10 years during the repayment of their loans. Borrowers who make 120 monthly
payments on or after October 2, 2007, according to specified repayment plan terms,
while concurrently employed full-time in certain public service jobs, will have any loan
balance of principal and interest remaining due after their 120th payment canceled or
forgiven by the Secretary of Education. Since borrowers must make 120 monthly
payments on or after October 2, 2007, while concurrently employed in public service
jobs, borrowers will become eligible for loan forgiveness no earlier than 2017.
This report provides a brief description of the DL program loan forgiveness
provision for public service employees and identifies issues that may be addressed as it
is implemented. It will be updated as warranted.
DL Program Loan Forgiveness for Public Service Employees
The College Cost Reduction and Access Act of 2007 amended the Higher Education
Act of 1965 (HEA) to establish a new loan forgiveness provision under the William D.
Ford Direct Loan (DL) program for borrowers who are employed full-time in public
service jobs for ten years during the repayment of their loans.1 Borrowers of DL program
loans who make 120 monthly payments on or after October 2, 2007, according to
specified repayment plan terms, while concurrently employed full-time in certain public
service jobs, will have any loan balance of principal and interest remaining due after their
1 HEA, § 455(m); [20 U.S.C. § 1087e(m)], as amended by P.L. 110-84, § 401.
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120th payment canceled or forgiven by the Secretary of Education. The DL program loan
forgiveness provision is available to new and existing borrowers alike.
Eligible DL Program Loans. The DL program loan forgiveness provision for
public service employees is available to borrowers of new and existing DL program loans.
The following types of DL program loans are specified as eligible for loan forgiveness:
Federal Direct (subsidized) Stafford Loans, Federal Direct Unsubsidized Stafford Loans,
Federal Direct PLUS Loans,2 and Federal Direct Consolidation Loans. Borrowers of
loans made under the Federal Family Education Loan (FFEL) program are not eligible to
have their FFEL program loans forgiven under the program. However, FFEL borrowers
may consolidate their loans into Federal Direct Consolidation Loans to take advantage of
the loan forgiveness provision. Also, while in most instances borrowers of Consolidation
Loans are ineligible to reconsolidate their loans under either the FFEL or DL programs,
effective July 1, 2008, borrowers of FFEL Consolidation Loans will become eligible to
reconsolidate their loans into Federal Direct Consolidation Loans for purposes of using
the DL program loan forgiveness provision for public service employees.
Repayment Plans. The terms of the loan forgiveness provision specify that
borrowers must make 120 payments on eligible DL program loans pursuant to one or
more specified repayment plans to become eligible for loan forgiveness. Borrowers may
repay their DL program loans pursuant to any combination of the following repayment
plans for which they are otherwise eligible: standard repayment plan, graduated repayment
plan, extended repayment plan, income-contingent repayment (ICR) plan, and income-
based repayment (IBR) plan.3 However, with the exceptions of the ICR4 and the IBR5
2 With respect to the loan forgiveness provision, the statute makes no distinction between PLUS
Loans borrowed on behalf of a dependent student and PLUS Loans borrowed by a graduate or
professional student.
3 Borrowers of PLUS Loans are not eligible to repay according to the ICR plan; however, PLUS
Loan borrowers may consolidate their loans and repay a DL Consolidation Loan according to the
ICR plan. Borrowers of PLUS Loans made on behalf of a dependent student and borrowers of
Consolidation Loans containing such loans will not be eligible to repay according to the IBR
plan. The IBR plan becomes available to eligible borrowers July 1, 2009.
4 Under the ICR plan, borrowers’ monthly payments are adjusted annually according to their
outstanding loan balance, adjusted gross income (AGI), and family size according to criteria
established by the Secretary in regulations. Consistent with these criteria, borrowers’ monthly
payment amounts are the lesser of (a) the amount calculated according to a 12-year repayment
period, multiplied by an income percentage factor that corresponds to their AGI, or (b) 20% of
the amount by which their AGI exceeds the poverty line. Monthly payments may range from $0
for borrowers with incomes at or below the poverty line, to amounts more than sufficient to repay
the loan in ten years for borrowers with high incomes. For additional information on the ICR
plan, see CRS Report RL33673, Federal Family Education Loan Program and William D. Ford
Direct Loan Program Student Loans: Terms and Conditions for Borrowers, by Adam Stoll.
5 Beginning July 1, 2009, the IBR plan will be available to borrowers of FFEL and DL program
loans (with the exceptions of PLUS Loans made on behalf of a dependent student and
Consolidation Loans containing such loans) for any period during which they demonstrate a
‘partial financial hardship.’ Borrowers will be determined to have a partial financial hardship if
their total annual payments on eligible FFEL and DL program loans, calculated according to a
standard 10-year repayment period, are greater than 15% of the amount by which their AGI
(continued...)
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plans, borrowers must make payments of not less than the monthly amount calculated
according to a standard 10-year repayment period to be eligible for loan forgiveness. It
would appear that in practical terms, to qualify for loan forgiveness under this provision,
borrowers may be precluded from repaying according to the extended and graduated
repayment plans.
On the basis of these requirements, it appears that for borrowers to make 120
payments on their loans and still have an outstanding balance available to be forgiven
after the completion of those payments, borrowers will need to make at least some of their
payments according to either the ICR or IBR plans. Additionally, it appears that if
borrowers repay according to either the ICR or IBR plans, their incomes relative to their
debt burden must be sufficiently low for at least some period, such that their monthly
payments calculated according to the respective plan are less than the monthly payment
amount calculated according to a standard repayment plan with a 10-year repayment
period. Otherwise, after making 120 monthly payments, borrowers will have fully repaid
their loans.
Public Service Jobs. Borrowers are required to be employed full-time in a
specified public service job at the time of loan forgiveness and for the period during
which they make each of the 120 monthly loan payments required for loan forgiveness.
For purposes of the loan forgiveness provision, a public service job is defined as a full-
time job in
! emergency management,
! government,
! military service,
! public safety,
! law enforcement,
! public health,
! public education (including early childhood education),
! social work in a public child or family service agency,
! public interest law services (including prosecution or public defense or
legal advocacy in low-income communities at a nonprofit organization),
! public child care,
! public service for individuals with disabilities,
! public service for the elderly,
! public library sciences,
! school-based library sciences and other school-based services, or
5 (...continued)
exceeds 150% of the poverty line. While repaying according to the IBR plan, borrowers’
monthly loan payments may range from $0, for borrowers with incomes at or below the poverty
line, to a maximum of 15% of any amount by which their AGI exceeds 150% of the poverty line.
If borrowers repaying according to the IBR plan no longer demonstrate a partial financial
hardship or no longer wish to repay according to the IBR plan, then their maximum required
monthly payments may not exceed the ‘initial’ monthly payment amount calculated according
to a standard 10-year repayment period as of their election to begin repaying according to the IBR
plan; and accordingly, their total repayment period may exceed ten years.
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! at an organization that is described in Section 501(c)(3) of the Internal
Revenue Code of 1986 and exempt from taxation under Section 501(a)
of such Code; or
! teaching as a full-time faculty member at a Tribal College or University
as defined in Section 316(b) and other faculty teaching in high-needs
areas, as determined by the Secretary.6
Implementation Issues
The DL program loan forgiveness provision for pubic service employees is available
to borrowers of DL program loans who make 120 payments according to specified
repayment plans while concurrently employed full-time in specified public service jobs,
on or after October 2, 2007. Issues regarding implementation of the loan forgiveness
provision will likely be addressed by the Department of Education (ED) either in the form
of ‘Dear Colleague’ letters or regulations. On October, 22, 2007, ED announced its
intention to establish one or more negotiated rulemaking committees to develop proposed
regulations to implement changes to HEA, Title IV programs enacted under the CCRAA,
including the DL program loan forgiveness provision.7 If ED publishes final regulations
by November 1, 2008, these would have an effective date of July 1, 2009.
It appears that all payments made by DL program borrowers on or after October 2,
2007, while also meeting the terms and conditions of the loan forgiveness provision will
apply toward the 120 payments required for loan forgiveness. However, a number of
issues about the new loan forgiveness provision might be clarified by ED and be
addressed in future guidance or regulations. Such issues include the procedures borrowers
will follow in applying for loan forgiveness, how borrowers will substantiate their full-
time employment in public service jobs during repayment, how any breaks in full-time
employment in public service jobs will be addressed, and how borrowers may ensure that
they have selected a repayment plan under which all of their monthly payments will
satisfy the minimum monthly payment amount necessary to be counted toward the 120
monthly payments required for loan forgiveness.
Consolidation Loans. Guidance might also be provided to clarify a number of
issues concerning Consolidation Loans. For example, it is unclear whether payments
made by borrowers on their DL program loans will continue to count toward the 120
monthly payments required for loan forgiveness if these borrowers subsequently
consolidate their loans into new DL Consolidation Loans, or whether Consolidation Loan
6 HEA, § 455(m)((3)(B), [20 U.S.C. § 1087e(m)(3)(B)]. Section 452 of H.R. 4137, as reported
by the House Committee on Education and Labor, would make a number of amendments to the
definition of public service jobs. Specifically, time served as a Member of Congress would be
excluded from government service, certain nursing and health care practitioner occupations
would be referenced as examples of public health occupations, the term ‘early childhood
education’ would replace the term ‘public child care,’ and certain faculty specialties would be
referenced as examples of a full-time faculty member at a Tribal College or University.
7 Department of Education, “Notice of Negotiated Rulemaking for Programs Authorized Under
Title IV of the Higher Education Act of 1965, as Amended,” 72 Federal Register 59494-59496,
October 22, 2007, at [http://www.ifap.ed.gov/fregisters/attachments/FR10222007.pdf], visited
November 8, 2007.
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borrowers must restart counting toward the required 120 monthly payments. The terms
of the loan forgiveness provision indicate that borrowers must make 120 monthly
payments on their loans according to either the ICR plan, the IBR plan, or another
repayment plan that is based on a 10-year repayment period. Since a Consolidation Loan
is a new loan, borrowers of Consolidation Loans may only be able to count the payments
made on their Consolidation Loan toward the 120 monthly payments required for loan
forgiveness.
In addition, for borrowers of Consolidation Loans, the maximum repayment period
under the standard repayment plan may range from 10 years to 30 years, depending on a
borrower’s total student loan indebtedness.8 It appears that Consolidation Loan borrowers
may need to ensure that they repay at least the monthly payment amount calculated
according to a 10-year repayment period to maintain eligibility for loan forgiveness,
regardless of whether they would otherwise be eligible to repay according to a maximum
standard repayment period of 12, 15, 20, 25, or 30 years, depending on their total student
loan indebtedness.
Finally, prior to July 1, 2006, married borrowers were eligible to obtain joint
Consolidation Loans. Future guidance might address the eligibility of joint Consolidation
Loan borrowers to have their loans forgiven under the DL loan forgiveness provision for
public service employees. Guidance might address whether one or both borrowers must
meet the employment and repayment requirements for loan forgiveness; and if these
requirements are met by only one of the joint borrowers, whether that borrower’s
proportionate share of the joint loan balance will be forgiven. Guidance might also
address how the future eligibility of FFEL Consolidation Loan borrowers to reconsolidate
their loans into Federal Direct Consolidation Loans for purposes of using the DL program
loan forgiveness provision, effective July 1, 2008, will apply to joint borrowers.
8 For details on repayment plans available to borrowers of DL program loans, see U.S.
Department of Education, Direct Loan Bulletin, “New Direct Loan Repayment Plans and
Changes in the Treatment of Consolidated PLUS Loans and Federal Perkins Loans,” DLB-07-16,
July 31, 2007, at [http://www.ifap.ed.gov/dlbulletins/DLB0716.html].