The Student Loan Forgiveness Application Backlog Is Getting Even Worse

Key Concepts:

• Public Service Loan Forgiveness (PSLF)
• Buyback Program
• SAVE Plan
• Forbearance (Voluntary and Involuntary)
• Income-Driven Repayment (IDR) Plans
• Application Backlogs (Buyback and IDR)
• Department of Education (ED)
• Reduction in Force (RIF)

1. Public Service Loan Forgiveness (PSLF) and the Buyback Program

• PSLF allows loan forgiveness after 10 years of qualifying public service work and payments.
• The buyback program is a relatively new option (created in 2023) that allows borrowers to make a lump-sum payment to cover periods of deferment or forbearance while working in public service.
• This enables borrowers to receive credit for those periods toward PSLF, as payments made during forbearance typically do not qualify.
• The buyback program is particularly useful for those forced into forbearance due to administrative issues, such as the legal challenges surrounding the SAVE plan.

2. The SAVE Plan Forbearance and its Impact

• Approximately 8 million borrowers are in forbearance due to legal challenges involving the SAVE plan, an income-driven repayment plan created by the Biden administration.
• While borrowers can make voluntary payments during this forbearance, these payments do not count toward PSLF.
• The buyback program serves as a workaround, allowing these payments to retroactively count toward PSLF.

3. The Buyback Application Process

• Borrowers must submit a formal application to "buy back" periods of forbearance or deferment.
• If approved, they receive a letter specifying the lump-sum payment required to cover the period.
• The buyback period must complete the sequence of payments needed to qualify for forgiveness.
• Applications can only be submitted when borrowers are close to the end of their 10-year qualifying period.

4. The Buyback Application Backlog

• Tens of thousands of borrowers have applied for the buyback program.
• The Department of Education (ED) is processing applications, but the rate of incoming applications exceeds the processing rate, leading to a growing backlog.
• The backlog has increased from just under 50,000 applications to over 72,000 in just three to four months, representing a nearly 50% increase.

5. Potential Causes of the Buyback Backlog

• The buyback program is relatively new, and the ED may not have anticipated the high volume of applications.
• The SAVE plan legal challenges and associated forbearance have driven more borrowers to utilize the buyback program.
• A mass reduction in force (RIF) at the Department of Education, initiated by the Trump administration, resulted in roughly 50% of the staff either taking buyout offers or getting laid off, potentially impacting the department's ability to process applications.

6. Department of Education's Response and Processing Rate

• The Department of Education (ED) has not provided specific assurances or plans for cutting through the backlog.
• The ED is processing approximately 1,500 to 3,500 applications per month.
• At the current processing rate, it could take an estimated two and a half years to clear the backlog, assuming no further surges in applications.

7. Advice for Borrowers in Buyback Purgatory

• Borrowers should still pursue PSLF buyback if eligible, but they should be prepared for a significant delay in processing.
• Borrowers should consider a "parallel pathway," such as switching to a different income-driven repayment (IDR) plan (e.g., IBR, Pay As You Earn) to resume making qualifying payments.
• However, applications for IDR plans also face a backlog.

8. Income-Driven Repayment (IDR) Backlog

• The IDR backlog is separate from the buyback backlog but related.
• Many borrowers need to be on an IDR plan to afford their payments, and IDR is a required component for most PSLF borrowers.
• The IDR backlog was 1.5 million applications about a month ago and has been reduced to 1.3 million, showing some improvement.
• Even with the reduction, it could still take almost a year to clear the IDR backlog at the current processing rate.

9. Financial Impact of the Backlogs

• Borrowers waiting for IDR approval may be stuck on repayment plans with higher monthly payments than they can afford.
• Interest accrues on loan balances during forbearance, even if borrowers are trying to change plans.
• Interest rates on federal student loans typically range from 5% to 8%.
• For example, a $100,000 loan accruing interest at 6% accumulates $6,000 in interest per year while waiting for IDR processing.

10. Strategies for Borrowers Waiting for IDR Approval

• The Department of Education (ED) has updated the online IDR application system to allow borrowers to import income information from their most recently filed tax return.
• Reapplying using the online system and consenting to data import may expedite processing.
• The ED claims that this should allow for expedited processing by cancelling the old application and processing the new one.
• This method is not suitable for everyone, particularly those with changed incomes or technological limitations.

11. Conclusion

The backlogs in both the PSLF buyback program and income-driven repayment (IDR) plan applications are causing significant delays and financial burdens for borrowers. While the Department of Education (ED) is processing applications, the rate is insufficient to keep up with the demand. Borrowers should continue to pursue available options, such as the buyback program and IDR plans, but should also be prepared for lengthy processing times and consider alternative strategies to mitigate the financial impact. The updated online IDR application system may offer some relief for certain borrowers.