Over 50 federal student loan forgiveness and repayment programs are currently authorized under federal law. Although each program is designed to operate somewhat differently, they are all intended to provide student loan debt relief to borrowers who perform specified types of service, enter into and remain employed in certain professions, serve in certain locations, or repay their loans according to an income-driven repayment plan for an extended period of time.
Each of the various programs has unique characteristics and may be distinguished by features such as differing borrower eligibility criteria, benefit amounts, the means through which benefits are provided, or how the program is funded. In this overview, several parameters are identified and used to broadly characterize various aspects of the currently authorized programs. As some of the terms commonly used to identify the benefits offered through these programs (e.g., loan forgiveness, cancellation, or repayment) are often used inconsistently from program to program, this report’s use of a consistent set of parameters to characterize various aspects of the programs facilitates the description and examination of some of the similarities and differences between the various programs.
In employment-focused loan forgiveness and loan repayment programs, a borrower typically must work or serve in a certain function, profession, or geographic location for a specified period of time to qualify for benefits. Under repayment plan-based loan forgiveness, a borrower typically must repay according to an income-driven repayment plan for a specified period of time to qualify for benefits. At the end of the specified term, some or all of the individual’s qualifying student loan debt is forgiven or repaid on his or her behalf. The individual is thus relieved of responsibility for repaying that portion of his or her student loan debt. One of the most important distinctions among these types of programs is whether the availability of benefits is incorporated into the loan terms and conditions and is thus considered an entitlement to qualified borrowers or whether benefits are made available to qualified borrowers at the discretion of the entity administering the program and whether the benefits are subject to the availability of funds.
In general, loan forgiveness benefits are broadly available to borrowers of qualified loans. The availability of these benefits is expressed to borrowers in their loan documents, such as the master promissory note and the borrower’s rights and responsibilities statement. A borrower who satisfies the loan forgiveness program’s eligibility criteria, as set forth in the loan terms and conditions, is entitled to the loan forgiveness benefits. Benefits that are entitlements to qualified borrowers are generally funded through mandatory appropriations and accounted for as part of federal student loan subsidy costs, which are discussed in detail later in the section titled “Cost of Loan Forgiveness and Loan Repayment Programs.” There are two broad categories of loan forgiveness benefits: loan forgiveness for public service employment and loan forgiveness following income-driven repayment.
Loan repayment programs also provide debt relief to borrowers for service in a specific function, profession, or location. However, in contrast to employment-focused loan forgiveness programs, the entity that administers a loan repayment program typically either directly repays some or all of the qualified borrower’s student loan debt on his or her behalf or provides funding to a separate entity for purposes of implementing a loan repayment program and making such payments. Loan repayment benefits are generally offered through programs that are separate or distinct from the program through which a federal student loan is made. In many instances, these programs are designed to address broad employment needs or shortages (e.g., within a specific occupation or geographic location), while other such programs are intended to help individual federal agencies recruit and retain qualified employees, often serving as an additional form of compensation to targeted employees, who may be harder to recruit or retain. Both types of loan repayment benefits are generally available to a limited number of qualified borrowers. Typically, loan repayment benefits are discretionary and their availability is subject to the appropriation of funds.
A related distinguishing characteristic of the types of debt relief programs examined in this report is the extent to which an individual may incur a federal income tax liability based on receipt of the program’s benefit. In general, debt forgiven under an employment-focused loan forgiveness program is excluded from a borrower’s gross income for federal income tax purposes, and therefore, the borrower would not be responsible for paying the federal income tax liability associated with the forgiveness benefit received.On the other hand, debt forgiven following income-driven repayment or repaid for public service employment is often included in a borrower’s gross income for federal income tax purposes, and therefore, the borrower would be responsible for paying the income tax liability associated with the forgiveness or repayment benefit received.
There are three broad categories of loans that may be eligible for inclusion in federal loan forgiveness and loan repayment programs:
1. Federal student loans made through programs authorized by Title IV of the Higher Education Act (HEA) and administered by the U.S. Department of Education (ED), Office of Federal Student Aid (FSA).
2. Student loans made through programs authorized by Title VII and Title VIII of the Public Health Service Act (PHSA) and administered by the U.S. Department of Health and Human Services (HHS), Health Resources and Services Administration (HRSA).
3. Private (nonfederal) education loans.
HEA Federal Student Loan Programs
At present, federal student loans are being made only through one HEA, Title IV federal student aid program—the Direct Loan program authorized under Part D of Title IV. However, federal student loans were previously also made through two other HEA programs. Until June 30, 2010, federal student loans were also made through the Federal Family Education Loan (FFEL) program, a guaranteed loan program, authorized under Part B of Title IV.12 FFEL program loans were made with terms and conditions that were substantially similar to those of loans offered through the Direct Loan program.13 Until September 30, 2017, federal student loans had been made through the Federal Perkins Loan program, which was authorized under Part E of Title IV.
In the Direct Loan program, loans are made by the government with federal capital. ED administers the program, and activities such as loan origination, servicing, and collection are performed by federal contractors. In the FFEL program, loans were made by nonfederal lenders with nonfederal capital. These entities were responsible for originating, holding, and servicing these loans. Nonprofit guaranty agencies administer federal loan insurance and process loan forgiveness benefits. During the period when the FFEL and Direct Loan programs both operated, one set of loan types was made through the FFEL program and another similar set of loan types was made through the Direct Loan program. While these two sets of loan types had borrower terms and conditions that were quite similar, some of the ways in which they differed pertained to availability of loan forgiveness benefits. Where applicable, differences in the availability of loan forgiveness benefits are noted in the discussion that follows.
In the Perkins Loan program, loans were made by institutions of higher education (IHEs) with a combination of capital provided by the federal government and capital provided by the institution. In the Perkins Loan program, the institution served as the lender and remain responsible for originating and servicing Perkins Loans and for processing loan cancelation benefits.
The following loan types comprise the primary types of loans that are currently being made—or were made in recent years—through HEA, Title IV federal student loan programs.
Subsidized Loans
In the Direct Loan program, Direct Subsidized Loans are available only to undergraduate students who demonstrate financial need.16 The federal government “subsidizes” these loans by not assessing interest charges while the borrower is enrolled in an eligible academic program on atUnsubsidized Loans.
Direct Unsubsidized Loans are available to undergraduate, graduate, and professional students. Students are not required to demonstrate financial need to be eligible to borrow these loans.20 As a non-need-based loan, loan proceeds may be used to finance portions of a student’s cost of attendance (COA) that would otherwise be expected to be met by the student’s expected family contribution (EFC) toward postsecondary education expenses. For these loans, the borrower is responsible for paying all the interest that accrues on the loan from the time it is disbursed, although interest payments may be deferred until the loan enters repayment status. Unsubsidized Loan borrowing is also limited by annual and aggregate borrowing limits. In FY2017, 8.1 million Direct Unsubsidized Loans, totaling $49.8 billion, were made.21
Direct PLUS Loans are available to the parents of undergraduate students who are dependent on them for financial support, as well as to graduate and professional students.22 Like Unsubsidized Loans, these are non-need-based loans and may be used to finance postsecondary education expenses that would otherwise be expected to be met by a student’s EFC. There are no explicit limits to the amount an individual may borrow in PLUS Loans. Rather, each year, an individual may borrow up to the amount that the COA of the student on whose behalf the loan is made is greater than his or her estimated financial assistance (EFA) from other sources (e.g., Pell Grants, Subsidized Loans, Unsubsidized Loans, private scholarships, etc.). In FY2017, 0.9 million Direct PLUS Loans, totaling $12.5 billion, were made to parents of undergraduate students and 0.6 million Direct PLUS Loans, totaling $9.9 billion, were made to graduate and professional students.
19 U.S. Department of Education, FY 2019 Department of Education Justifications of Appropriation Estimates to the Congress, Volume II, Student Loans Overview, p. Q-24.
20 Prior to July 1, 2010, loans with substantially similar terms and conditions—Unsubsidized Stafford Loans—were made through the FFEL program. For the remainder of this report, Direct Unsubsidized Loans and FFEL Unsubsidized Stafford Loans are referred to jointly as Unsubsidized Loans; however, in instances where loan forgiveness or loan repayment benefits are only available to borrowers of one loan type, this distinction is noted.
21 U.S. Department of Education, FY 2019 Department of Education Justifications of Appropriation Estimates to the Congress, Volume II, Student Loans Overview, p. Q-24.
22 When first established, PLUS Loans were referred to as Parent Loans for Undergraduate Students. Prior to July 1, 2010, PLUS Loans were made through the FFEL program with terms and conditions that were mostly similar to Direct PLUS Loans. For the remainder of this report, Direct PLUS Loans and FFEL PLUS Loans are referred to jointly as PLUS Loans; however, in instances where loan forgiveness or loan repayment benefits are only available to borrowers of one loan type, this distinction is noted.
Direct Consolidation Loans allow borrowers with existing federal student loans to combine their loan obligations into a single loan and to extend their repayment period.Consolidation Loans must include at least one loan made through either the Direct Loan or the FFEL program. In addition, Consolidation Loans may include loans made through the federal student loan programs authorized or previously authorized under Title IV of the HEA24 and loans made through the following programs authorized under Title VII and Title VIII of the PHSA (described below):
Health Professions Student Loans (HPSL)
Loans for Disadvantaged Students (LDS)
Nursing Student Loans (NSL)
Health Education Assistance Loans (HEAL)
The Direct Consolidation Loans currently being made are fixed rate loans for which the interest rate is based on the weighted average interest rate of the loans being consolidated, rounded up to the nearest higher one-eighth of 1%.25 In FY2017, 0.9 million Direct Consolidation Loans, totaling $48.8 billion, were made.26
Perkins Loans were available to undergraduate and graduate and professional students. IHEs were required to make Perkins Loans reasonably available to all eligible students, with priority given to students with exceptional financial need.27 Interest on Perkins Loans is fixed at 5% per year,28 and interest does not accrue prior to a borrower’s beginning repayment or during periods of authorized deferment.
24 These loan types (some of which are no longer being disbursed) are Federal Perkins Loans, Guaranteed Student Loans, Federal Insured Student Loans (FISL), National Direct Student Loans, National Defense Student Loans, Supplemental Loans for Students (SLS), and Auxiliary Loans to Assist Students (ALAS).
25 Prior to July 1, 2010, Consolidation Loans were made through both the Direct Loan and FFEL programs. The terms and conditions applicable to a Consolidation Loan depend on when the loan was made. Prior to July 1, 2006, there were notable differences between the terms and conditions of Direct Consolidation Loans and those of FFEL Consolidation Loans.
For loans made after July 1, 2006, the terms and conditions of loans made under both programs are substantially similar. For the remainder of this report, Direct Consolidation Loans and FFEL Consolidation Loans are referred to jointly as Consolidation Loans; however, in instances where loan forgiveness or loan repayment benefits are only available to borrowers of one loan type, this distinction is noted.
26 U.S. Department of Education, FY 2019 Department of Education Justifications of Appropriation Estimates to the Congress, Volume II, Student Loans Overview, p. Q-24.
27 Authorization to make new Perkins Loans to eligible students expired September 30, 2017. Borrowers of Perkins Loan remain responsible for making payments on their loans.
28 Older Perkins Loans, which may remain outstanding, were made with other interest rates (i.e., 3% or 4%), depending on when the loan was made.
HRSA, within HHS, makes student loans to specific health professions students through five loan programs authorized under Title VII and Title VIII of the PHSA. Collectively these programs made 20,849 loans in academic year 2016-2017 for a total of approximately $162.8 million.30 The five programs are described below.31
Health profession student loans provides low interest rate loans to full-time students who are pursuing degrees in dentistry, optometry, pharmacy, podiatric medicine, or veterinary medicine. The program is administered by schools that select participants who are citizens, nationals, or lawful permanent residents of the United States and financially needy.32 For academic year 2016-2017, HRSA estimated that it made 6,842 loans, totaling $64.2 million.
Primary care loans provides 5% fixed interest rate loans to full-time students who are pursuing degrees in allopathic or osteopathic medicine. The program is administered by individual medical schools that select participants who are citizens, nationals, or lawful permanent residents of the United States and financially needy. In exchange for receiving a primary care loan, students must complete a residency in a primary care field (family medicine, internal medicine, pediatrics, preventive medicine, osteopathic general practice or combined programs in internal medicine and pediatrics) and practice in a primary care field for 10 years. Loan recipients who fail to meet the service requirements must repay their primary care loans at a higher interest rate of 7%.34 For academic year 2016-2017, HRSA estimated that it made 252 loans, totaling $17.8 million.
29 U.S. Department of Education, FY 2018 Department of Education Justifications of Appropriation Estimates to the Congress, Volume II, Student Financial Assistance, p. O-39.
31 For additional information on PHSA loans, see U.S. Department of Health and Human Services, Health Resources and Services Administration, “Loans & Scholarships,” at https://bhw.hrsa.gov/loansscholarships; for information on the Nurse Faculty Loan Program, see U.S. Department of Health and Human Services, Health Resources and Services Administration, “Nurse Faculty Loan Program (NFLP),” at http://bhpr.hrsa.gov/nursing/grants/nflp.html.
32 U.S. Department of Health and Human Services, Health Resources and Services Administration, “School-Based Scholarships and Loans,” at https://bhw.hrsa.gov/loansscholarships/schoolbasedloans.
33 Email Communication, Health Resources and Services Administration, Office of Legislation, August 15, 2018.
34 U.S. Department of Health and Human Services, Health Resources and Services Administration, “School-Based Scholarships and Loans,” at https://bhw.hrsa.gov/loansscholarships/schoolbasedloans.
Nursing student loans provides low interest rate loans to students who are pursuing studies that lead to a diploma, associate, baccalaureate, or graduate degree in nursing. The program is administered by nursing schools that select participants who are citizens, nationals, or lawful permanent residents of the United States and financially needy.38 For academic year 2016-2017, HRSA estimated that it made 10,138 loans, totaling $31.8 million.39
Nurse Faculty loans provides loans to registered nurses who are completing their graduate studies necessary to become qualified nursing school faculty. The program is administered by individual nursing schools that offer eligible advanced masters or doctoral degree nursing programs. Nursing schools select participants for loans and may also offer loan forgiveness (see “Nursing Faculty Loan Repayment Program” in Appendix A).40 For academic year 2016-2017, HRSA estimated that it made 1,998 loans, totaling $27.3million.
38 U.S. Department of Health and Human Services, Health Resources and Services Administration, “School-Based Scholarships and Loans,” at https://bhw.hrsa.gov/loansscholarships/schoolbasedloans.
40 U.S. Department of Health and Human Services, Health Resources and Services Administration, “School-Based Scholarships and Loans,” at https://bhw.hrsa.gov/loansscholarships/schoolbasedloans.
In addition to the student loans made through the federal student loan programs identified above, student loans are also made by a variety of nonfederal entities. The most common of these are student loans made by private financial institutions (e.g., banks, credit unions), student loans made through state-supported loan programs, and loans made by IHEs. These types of loans are sometimes referred to as private student loans or alternative loans. The terms and conditions of private education loans are specified by the entity responsible for making these loans. While private education loans are not made through federal loan programs, a small number of federal loan repayment programs make benefits available to borrowers of some types of these loans.
All student loan forgiveness and loan repayment programs provide some form of debt relief to borrowers who satisfy certain eligibility criteria. While these programs all support the broad common purpose of providing borrowers with debt relief, they are distinguished by unique program characteristics and features. This section of the report first outlines the three categories of debt relief programs discussed above (see “Distinction among Loan Forgiveness andLoan Repayment Programs”) and the qualifying criteria for borrowers associated with these three broad categories. It then identifies a number of program components or parameters that are used to characterize or classify the various programs and to facilitate the examination of and comparison between the various programs using a common terminology. Major program components examined include types of qualifying service, the consideration of borrower economic circumstances, amounts and timing of debt relief, and exclusions or limitations on benefits.
Individuals’ economic circumstances may affect eligibility, with several loan forgiveness and loan repayment programs using a borrower’s economic circumstances as a criterion to qualify for benefits. There are two primary ways that individuals may qualify for benefits based on their economic circumstances. Some programs allow individuals to qualify for benefits based on their economic circumstances at the time they borrow, while other programs allow individuals to qualify for benefits based on their economic circumstances during the repayment period. In some programs, the borrower’s economic circumstance is one factor that is considered alongside others, such as qualifying types of service.Many non-U.S. citizens qualify for federal student aid http://studentaid.ed.gov/eligibility/non-us-citizens.
Typically, for programs that extend debt relief to borrowers based on their economic circumstances, individuals may be eligible to receive program benefits if they are from a disadvantaged background (based on family economic circumstances)50 or if their expected monthly loan payment exceeds a certain percentage of their income.
Programs can also be categorized by the amount of loan forgiveness or loan repayment benefits provided and the schedule for providing those benefits to qualified borrowers. There are three primary methods used to determine the amount of benefits an individual is eligible to receive and when those benefits are realized. Generally, programs forgive the entire outstanding balance of a borrower’s loans or repay either a flat dollar amount specified in the authorizing statute or a percentage of the outstanding loan.
Several programs offer to forgive the entire amount of an individual’s outstanding student loans. Typically, in these programs, a borrower is required to make a certain number of payments towards the balance of their student loans, and at the end of a specified period of time, the remaining balance of their outstanding loans is forgiven.
Many loan forgiveness and loan repayment programs contain provisions that may restrict or limit the availability of benefits in certain circumstances. In general, borrowers who have defaulted on their loans are ineligible for loan forgiveness or loan repayment benefits. Certain programs contain restrictions that prohibit borrowers from also receiving benefits under certain other federal student loan forgiveness or loan repayment programs for the same qualifying service. In some programs, borrowers must be U.S. citizens or nationals to be eligible for benefits. In programs that provide loan repayment benefits concurrent with or prior to the completion of the qualifying service, borrowers may be financially penalized if they do not complete their term of service.
Many federal loan forgiveness and loan repayment programs prohibit individuals from benefitting from multiple programs for completion of the same service. For instance, the Stafford Loan Forgiveness for Teachers program will not make benefits available to individuals for the same service used to qualify for benefits under the Public Service Loan Forgiveness (PSLF) program, the Loan Forgiveness for Service in Areas of National Need program, or for AmeriCorps Education Awards. Alternatively, in some programs, individuals are ineligible for benefits if they are already receiving benefits under another program, but they may become eligible for program benefits once their obligation under the first program is completed.
Depending on the program, the availability of loan forgiveness and loan repayment benefits may be restricted for borrowers who have defaulted on their loans. In some programs, the availability of benefits for borrowers whose loans are in default status depends on certain characteristics of the defaulted loans. For instance, in the Direct Loan Stafford Loan Forgiveness for Teachers program, borrowers are generally ineligible for teacher loan forgiveness on defaulted loans, however, loan forgiveness may be granted to borrowers who have made satisfactory repayment arrangements for their loans. While in the Perkins Loan Cancellation program, borrowers of defaulted loans whose loans have not been accelerated62 may qualify for loan forgiveness on the same terms as borrowers who have not defaulted, and borrowers of defaulted loans whose loans have been accelerated may qualify for loan forgiveness based on service performed prior to, but not after, the date of acceleration.
Provisions that require recipients of loan forgiveness or loan repayment benefits to pay back the amount of the benefits they received if they fail to complete their service obligations may be referred to as clawback provisions. Such provisions are common in federal loan forgiveness and loan repayment programs. Some clawback provisions only require participants to repay an amount equal to the unearned or disallowed portion of their benefits, while others may require participants to repay an amount equal to the benefit received, plus interest. Moreover, in some programs, clawback provisions may also require beneficiaries to pay punitive fees, in addition to amounts equal to the unearned portion of their benefits. Finally, many programs exempt borrowers from liability for unearned benefits if they become disabled, or upon death.
61 20 U.S.C. §1087e(m)(1).
62 When a loan is accelerated, the institution that made the loan may demand immediate repayment of the entire loan, including any late charges, collection costs, and accrued interest. (34 C.F.R. §674.31(b)(8)).
Some programs’ authorizing statutes specifically state that loan forgiveness or loan repayment under those programs will be excluded from an individual’s gross income for purposes of taxation. For instance, the HEA specifies that any part of a Federal Perkins Loan that is forgiven is excluded from gross income.68
For programs without authorizing statutes that specifically exclude loan forgiveness or loan repayment benefits from gross income, benefits may still be excluded if certain conditions in IRC Section 108(f) are met. The loans that are repaid or forgiven must have been borrowed to assist an individual in attending a qualified educational institution and must contain terms providing that some or all of the loan balance will be cancelled for work for a specified amount of time in certain professions or occupations and for any broad class of employers.69 The loan must also have been made by specified types of lenders, including the federal and state governments. Additionally, IRC Section 108(f)(4) provides exclusions for the National Health Service Corps Loan Repayment program (NHSCLRP) and state programs eligible to receive funds under the Public Health Service Act (PHSA).70
In general, if loan forgiveness or repayment benefits are not specifically excluded from income by statute or if the requirements of IRC Section 108(f)(4)71 are not met, individuals are responsible for paying any income tax liability associated with the loan forgiveness or loan repayment benefits received. However, at least eight loan forgiveness and loan repayment programs provide supplemental funds to borrowers to offset any tax liability incurred as a result of the discharge of their loans.72
Many recipients of loan forgiveness and loan repayment benefits can avoid being subject to thousands of dollars in taxation if their benefits are excluded from gross income. At the same time, the Joint Committee on Taxation estimated that approximately $200 million of revenue was lost in FY2017 due to the exclusion from taxation of income attributable to the forgiveness and repayment of student loan debt.73
67 IRC §61(a)(12).
68 20 U.S.C. §1087ee(a)(5).
69 Loans made under the FFEL, Direct Loan, and Perkins Loan programs all contain terms that provide that if borrowers work for a specified amount of time in certain professions, for certain broad classes of employers, some or all of the debt may be cancelled. Borrowers may also refinance existing loans borrowed from any lender by obtaining new loans from qualifying educational or other tax-exempt organizations in order to participate in a public service program offered by that organization. The public service program must be designed to encourage individuals to serve in specific occupations and in which the services performed are under the direction of a governmental or tax-exempt organization. If borrowers refinance their loans in this way, any loan forgiveness or repayment benefits received may be excluded from gross income.
70 For additional information on the federal income tax treatment of discharged student loans, see U.S. Congress, Senate Committee on the Budget, Tax Expenditures: Compendium of Background Material on Individual Provisions, committee print, prepared by the Congressional Research Service, 114th Cong., 2nd sess., December 2016, S.Prt. 114-31 (Washington: GPO, 2017), pp. 695-700.
71 Federal tax law provides other exclusions from gross income that may be relevant to borrowers whose student loans are discharged. For instance, a borrower may exclude discharged debt from gross income if he or she is insolvent at the time of loan discharge. IRC §108(a)(1).
73 Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2017-20121, JCX-34-18, <ay
Researchers debate whether providing loan repayment or forgiveness benefits is an effective way to encourage borrowers to enter specific professional or occupational fields, serve in specific geographic areas, or enter into government service. In general, three main issues are explored when determining the effect of these programs:
1. Whether individuals would enter into and/or remain in these fields or positions without the prospect of loan forgiveness or loan repayment.
2. Whether student loan debt is the only or the most substantial impediment to entering into and/or remaining in these fields or positions.
3. Whether the prospect of debt relief through loan repayment or loan forgiveness programs encourages students to finance a larger portion of their postsecondary education expenses with student loans than they otherwise would have without such prospects.
These issues largely focus on the individuals who receive loan forgiveness or loan repayment benefits,74 but another aspect of effectiveness to consider is the cost of these programs to the federal government relative to the benefits received. The analysis below first discusses program effectiveness as it relates to individuals and is then followed by a discussion of the costs that the federal government incurs when operating loan forgiveness and loan repayment programs.
In assessing the influence of a loan forgiveness or loan repayment program on an individual’s employment choice, one issue to consider is whether, in the absence of such a program, the recipient would have engaged in the qualifying service. Information on the influence of such programs might be gleaned from an examination that compares the career paths of individuals who have access to loan forgiveness or loan repayment benefits with the career paths of otherwise similarly situated individuals without such access. These types of evaluations generally have not been conducted for federal loan forgiveness and loan repayment programs. However, some data from one federal program may be instructive.
The National Institutes of Health (NIH) examined the career trajectories of loan repayment recipients in its Intramural Research Program (IRP) and compared them with similar individuals who did not receive loan repayment under the IRP. The purposes of the IRP’s loan repayment component is to encourage individuals to complete medical research at the NIH and to encourage qualified health professionals to continue careers in medical research in general (e.g., at a university). The NIH found that individuals receiving loan repayment benefits were more likely to continue conducting medical research at the NIH than those who did not. Likewise, individuals who received loan repayment benefits but then left the NIH were more likely to continue a career.
The majority of research has examined loan repayment programs. In general, loan forgiveness programs occur after an individual has completed a period of service, thereby, rewarding an individual for choosing a specific occupation. This differs from loan repayment programs that provide repayment during or shortly after an individual is working in a specific occupation or geographic location.
While the NIH study indicates that its loan repayment program may be meeting its stated goals, the loan repayment program is unlikely the sole reason for at least some of the individuals to remain in the NIH’s targeted positions. Other research has found that some individuals would have entered certain fields or taken certain positions in the absence of loan repayments for a variety of other reasons. If this were true, then the program would not have been necessary and, therefore, might be considered ineffective. For example, a loan repayment program may be an effective incentive when jobs are plentiful for recent graduates who are weighing multiple employment opportunities but may be unnecessary when there are fewer employment opportunities. In relatively recent years, for instance, law school graduates have had fewer employment opportunities76 and may take a public interest or government job because of more limited private sector opportunities. Finally, individuals who accept loan repayment for a specific job might have taken the same job without loan repayment benefits. For example, one study found that healthcare providers who practice in rural areas would have done so without receiving a loan repayment award.77
Although in some cases loan forgiveness or loan repayment programs may appear to be unnecessary, in some instances there is evidence showing that participants would likely not have taken a particular position but for loan repayment. For example, the NIH examined its IRP loan repayment program and found that most loan repayment award recipients had competing job offers and stated that the potential for loan repayment was an attractive benefit that was unique to the NIH employment. This was particularly true for physicians who often had competing job offers at higher salaries. Physicians who received loan repayment benefits were also more likely to remain in research at the NIH, which demonstrates that loan repayment may be an important recruitment and retention tool.78
Other federal agencies have found that loan repayment programs are effective at recruiting and maintaining staff, but there are indications that some aspects of a program’s design may undermine its effectiveness.79 For example, discretionary programs may have their funding reduced or cut altogether, thus making the availability of loan repayment benefits to individuals uncertain. The effectiveness of these programs as a recruitment incentive may be hard to determine because job applicants do not know whether they will receive a loan repayment award until after having accepted a job.
76 National Association for Legal Career Professionals, Class of 2011 Has Lowest Employment Rate Since Class of 1994, NALP Bulletin, July 2012, http://www.nalp.org/0712research.
77 D.M. Renner et al., “The Influence of Loan Repayment on Rural Healthcare Provider Recruitment and Retention in Colorado,” Rural and Remote Health, vol. 10, no. 1605 (September 4, 2010).
78 Glazerman, NIH Intramural Research Loan Repayment Program.
79 U.S. Government Accountability Office, Federal Student Loan Repayment Program: OPM Could Build on Its
Efforts to Help Agencies Administer the Program and Measure Results, 05-762, July 22, 2005. 80 Glazerman, NIH Intramural Research Loan Repayment Program.
While the dollar amount of loan repayment benefits may be perceived as sufficient, additional program design elements such as an individual’s responsibility to pay federal income taxes associated with receiving a loan payment may make the benefit less attractive for an individual. Specifically, under the Government Employee Student Loan Repayment Program (GESLRP), participants are responsible for the tax liability, which some agencies estimate can account for 39% of the loan repayment amount. Some agencies suggest that this makes the program less attractive to participants than it would be if benefits were excluded from taxation.82
Another consideration is the short-term nature of many of these programs (e.g., providing loan repayment benefits in exchange for a two-year employment commitment), which may contribute to turnover, as individuals may decide to change jobs once they have realized the full benefit of a program. This could possibly lead to a less stable workforce for employers. For example, some researchers have found that individuals who have a service obligation have shorter tenures in a particular position than do individuals who do not have service obligations.83
82 U.S. Government Accountability Office, Federal Student Loan Repayment Program: OPM Could Build on Its Efforts to Help Agencies Administer the Program and Measure Results, 05-762, July 22, 2005, p. 22.
83 Till Barnighausen and David E. Bloom, “Financial Incentives for Return of Service in Underserved Areas: A Systematic Review,” BMC Health Services Research, vol. 9, no. 86 (May 29, 2009).
A related critique of loan forgiveness and loan repayment programs is that despite these programs’ providing a financial inducement for individuals to enter a specific field that is relatively lower paying (e.g., primary care medicine versus a specialty field), the amount received is generally far less than the overall lifetime earnings gap. One study estimated that over a lifetime, the average primary care physician earns $3.5 million less than a specialty physician.87 Given that borrowers are unlikely to have $3.5 million in student loan debt, loan repayments cannot fully make up for the lower lifetime earnings from entering primary care.
Other research has found that high levels of debt do influence job choice. For example, in a literature review of the influence of law school debt on legal practice, the author found that high levels of law school debt often make it more likely for recent graduates to work at large law firms, where they are likely to earn more.88 Similarly, when examining the career trajectories of undergraduates, researchers have found that undergraduate students with higher debt levels are more likely to choose higher salary jobs and less likely to enter education-related fields, work for a government agency, or work at a nonprofit organization—all job choices that traditionally are associated with a lower income than their private sector counterparts.89 Some studies, however, have found that law school debt levels may play a secondary role in an individual’s determination of which occupations to enter after graduation, while demographic characteristics may be a more dominant factor in the decision-making process (similar to the finding noted above that there is racial and ethnic variation in the importance of debt on career trajectories). This may indicate that loan repayment programs have little or no effect on the career choice of law school graduates.90
A third issue regarding the effects of student loan forgiveness and loan repayment programs is whether the prospect of debt relief through loan repayment or loan forgiveness programs encourages students to finance a larger portion of their postsecondary education expenses with student loans than they otherwise would have without such prospects. This issue has been specifically raised with regard to those programs—the various income-driven repayment (IDR) plans and PSLF—that provide an open-ended amount of student loan debt relief after borrowers make student loan payments that are capped at a smaller portion of their discretionary income for a limited duration (e.g., 20 years).
87 The Council on Graduate Medical Education, Twentieth Report, Advancing Primary Care, Rockville, MD,
88 Erica Field, “Educational Debt Burden and Career Choice: Evidence from a Financial Aid Experiment at NYU Law School,” American Economic Journal: Applied Economics, vol. 1, no. 1 (January 2009), pp. 1-21. This study also examined how the design of a law school’s loan repayment program also influenced its effectiveness. Specifically, the author found that scholarship programs were more effective for encouraging students to enter public interest law when compared to loan repayment programs.
89 Jesse Rothstein and Cecilia Elena Rouse, “Constrained After College: Student Loans and Early Career Occupational Choices,” Journal of Public Economics, 95(1-2) (February 2011), pp. 149-163.
90 The Committee on Legal Education and Admission to the Bar, “Law School Debt and the Practice of Law,” The Record of the Association of the City of New York, 2003.
Under the IDR plans, monthly payments are tied to income, not amount owed, and individuals may receive forgiveness of their entire outstanding balance of loan principal and interest after certain conditions are met. Monthly payments are limited to a portion (e.g., 10%, 15%) of discretionary income and maximum repayment periods are shorter than may otherwise be necessary to repay the entirety of the debt. Some argue that tying monthly payments to income and not debt in this way may “render the size of the debt irrelevant” to a borrower and may encourage student over-borrowing.91 In addition, some hypothesize that the lack of student incentive to limit borrowing also may make some students less sensitive to the price of education.92 Similar arguments have been made about the PSLF program, under which individuals may gain the largest amount of forgiveness benefit by repaying their loans under an IDR plan for 10 years while working in public service.93
The granting of loan forgiveness and loan repayment benefits to borrowers results in costs to the federal government. The nature of the costs that are incurred by the government depends on the structure of the applicable program through which these benefits are made available. There are three categories of costs that typically may be associated with loan forgiveness and loan repayment programs: loan subsidy costs, appropriated program costs, and administrative costs.
91 See, for example, Brian Z. Tamanaha, “The Problems with Income Based Repayment, and the Charge of Elitism: Responses to Schrag and Chambliss,” The Georgetown Journal of Legal Ethics, vol. 26 (2013), pp. 532-534.
92 See, for example, ibid. See also John R. Brooks, “Income-Driven Repayment and the Public Financing of Higher Education,” Georgetown Law Journal, vol. 108 (2016), pp. 283-284.
93 See, for example, Jason Delisle and Alexander Holt, Zero Marginal Cost: Measuring Subsidies for Graduate Education in the Public Service Loan Forgiveness Program, New America, September 2014.
In loan repayment programs, the direct costs of borrower benefits are not incorporated into the subsidy rates of the federal credit programs through which the federal student loans were made, but rather are funded through the appropriation of funds for the fiscal year during which the loan repayment benefits are made available. (However, the early repayment of a loan may also have an effect on loan subsidy costs.) Funding may be provided through either discretionary or mandatory appropriations. For these types of programs, benefits are available to borrowers only in years for which appropriations have been made and only to the extent that the availability of funds allows. Thus, for these types of programs, sufficient funding might not be available to extend benefits to all borrowers who satisfy the eligibility criteria for loan repayment benefits. Examples of programs funded through discretionary appropriations include the Government Employee Student Loan Repayment (GESLR) program and the John R. Justice (JRJ) Loan Repayment for Prosecutors and Public Defenders Program. An example of a program funded through mandatory appropriations is the National Health Service Corps Loan Repayment program (NHSCLRP).98
Government, Fiscal Year 2019, Analytical Perspectives, “Budget Concepts and Budget Process: Federal Credit,” pp. 91-92, https://www.whitehouse.gov/wp-content/uploads/2018/02/ ap_8_concepts-fy2019.pdf.
98 The National Health Service Corps Loan Repayment Program had been a discretionary program prior to its receiving
The manner of providing funding for Perkins Loan Cancellation benefits is unique. The availability of Perkins Loan Cancellation benefits is specified in the terms and conditions of Perkins Loans and all borrowers who satisfy program eligibility criteria must be granted loan forgiveness by the institution that made the Perkins Loan. However, whereas most loan forgiveness program benefits are components of federal credit programs, the Perkins Loan program is not a federal credit program. Funding for reimbursement from the federal government to institutions for Perkins Loan Cancellation benefits is authorized to be made available through discretionary appropriations. While funding was last appropriated for Perkins Loan Cancellation reimbursements in FY2009, qualified borrowers have continued to have their loans canceled despite no funding being appropriated. Since the Perkins Loan program is a revolving loan fund program, institutions that have canceled Perkins Loans for eligible borrowers have absorbed the costs of loan cancellation without having these costs reimbursed by the federal government. ED currently maintains a record of reimbursement amounts institutions would be eligible to receive should funding be appropriated.99
Whereas most of the costs associated with loan forgiveness and loan repayment programs may be considered programmatic costs and are either incorporated into loan subsidy rates or are funded on a fiscal year basis through discretionary or mandatory appropriations for the applicable program, the costs of administering these programs are generally accounted for and funded separately. For loan forgiveness benefits that are offered through federal credit programs, in accordance with requirements of the FCRA, administrative costs are accounted for separately on a cash basis and are funded through annual appropriations. Loan repayment programs are administered by numerous agencies and there is variation across programs in how administrative costs are funded. For ED programs administered by Federal Student Aid, discretionary appropriations are provided for federal student aid administration.
Limited information is available on the actual costs to the government of loan forgiveness and loan repayment programs. For some programs—particularly many loan forgiveness programs— the only information available on program costs are estimates of the dollar amount or number of loans projected to be forgiven in future years, because borrowers have not yet become eligible to realize these benefits. For other programs—primarily loan repayment programs—information is often available on items such as the total amount of benefits provided or the number of borrowers who received benefits in a given fiscal year. Cost estimates for loan forgiveness programs in which benefits have not yet been realized are discussed below. For a limited set of programs in which benefits have been awarded to borrowers, and where relevant data are available, data on the amount of debt relief provided and the number of recipients is presented in Appendix A on a program-by-program basis.
99 U.S. Department of Education, Office of Federal Student Aid, Electronic Announcement, “2016-2017 Federal Perkins Loan Service Cancellation Reimbursement,” May 4, 2018.
For the Direct Loan Public Service Loan Forgiveness program, in a 2008 notice of proposed rulemaking (NPRM) to implement changes made by the College Cost Reduction and Access Act of 2007 (P.L. 110-84), ED estimated a cost to the government of $1.5 billion over the five-year period of FY2008-FY2012, with $1.2 billion of that amount being associated with loans made prior to FY2008.100 (For federal credit programs, costs are associated with the cohort year in which a loan is made, as opposed to the year in which benefits are realized.) ED did not provide estimates of the number of borrowers expected to receive loan forgiveness benefits.101
For the Revised Pay-As-You-Earn (REPAYE) repayment plan, in the 2015 Final Regulation, ED estimated that for the cohorts of borrowers from 1994 to 2025, a total of approximately 6 million borrowers will be eligible for REPAYE, and of those, approximately 2 million borrowers would choose to enroll in the plan.102 It also estimated that the availability of the REPAYE plan would cost approximately $15.4 billion.103
For the Pay-As-You-Earn (PAYE) repayment plan, in a 2012 NPRM, ED estimated a cost to the government of $2.1 billion over the 10-year period of FY2012-FY2021. In arriving at this figure, ED estimated that approximately 1.67 million borrowers would elect to repay their loans according to the PAYE plan.104 Of these borrowers, ED estimated that approximately 400,000 would receive loan forgiveness through either public service loan forgiveness or after 20 years of repayment according to the PAYE plan.105 On a per-borrower basis, ED estimated that the average original loan balance of borrowers receiving loan forgiveness would be $39,500 and that, because many borrowers would pay only interest and no principal on their loans under the PAYE plan, these borrowers would have an average of $41,000 in loans forgiven.106 In the same 2012 NPRM, ED estimated that approximately 1 million borrowers from the 2014-2021 cohorts would elect to repay their loans according to the IBR plan for post-July 1, 2014 borrowers, but it did not provide estimations on how many individuals might realize forgiveness benefits under the plan.107
Finally, for the IBR plan for pre-July 1, 2014, borrowers, ED estimated in its 2008 NPRM that 126,000 borrowers from the FY2009 loan cohort would repay their loans according to IBR, and that 44,000 of such borrowers would have at least some portion of their student loan debt forgiven after 25 years. For the FY2012 cohort, ED estimated that 146,000 borrowers would
100 U.S. Department of Education, “Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program; Proposed Rule,” 73 Federal Register 127, July 1, 2008, p. 37709.
101 ED reports that as of June 30, 2018, 96 borrowers have received a total of $5.52 million in PSLF program benefits. U.S. Department of Education, Office of Federal Student Aid, “Public Service Loan Forgiveness Data,” PSLF Report, https://studentaid.ed.gov/sa/about/data-center/student/loan-forgiveness/pslf-data, accessed October 24, 2018.
102 ED reports that as of March 31, 2018, approximately 2.17 million borrowers, with outstanding loans totaling $199.0 billion, are enrolled in the REPAYE repayment plan. U.S. Department of Education, Office of Federal Student Aid Data Center, “Portfolio by Repayment Plan (DL, FFEL, ED-Held FFEL, and ED-owned).”
103 U.S. Department of Education, Office of Postsecondary Education, “Student Assistance General Provisions, Federal Family Education Loan Program, and William D. Ford Federal Loan Program,” 80 Federal Register 67229, October 30, 2015.
104 ED reports that as of March 31, 2018, approximately 1.22 million borrowers, with outstanding loans totaling $72.5 billion, are enrolled in the PAYE repayment plan. U.S. Department of Education, Office of Federal Student Aid Data Center, “Portfolio by Repayment Plan (DL, FFEL, ED-Held FFEL, and ED-owned).”
105 U.S. Department of Education, “Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program; Proposed Rule,” 77 Federal Register 137, July 17, 2012, p. 42121.
106 Ibid., p. 42122. 107 Ibid.
Congress may explore whether existing policy on the availability of federal student loan forgiveness and loan repayment programs is optimal or whether changes should be made. Several issues related to loan forgiveness and loan repayment policy might be examined. For instance, should multiple programs make available loan forgiveness or loan repayment benefits for borrowers who engage in similar types of activities? Does the structure of some loan forgiveness or loan repayment programs lead to a financial windfall for borrowers who engage in the same type of activity they otherwise would have even if debt relief were not available? Is sufficient information available to assess whether existing programs are effectively achieving their intended purposes?
Programs may be considered to overlap if multiple programs have the same or substantially similar goals and activities. There are two primary ways that student loan forgiveness and repayment programs can be considered overlapping. First, the same borrower could receive benefits from two different programs for the same service performed. Second, multiple programs may be available to the same group of individuals and may serve the same purpose, such that the federal government could be spending money on administrative costs for both programs when only one may be sufficient.
Individuals potentially may be able to qualify for benefits under multiple programs. Although some programs (e.g., Stafford Loan Forgiveness for Teachers) specifically state that recipients are not allowed to receive benefits under that and certain other programs for the same qualifying service, other programs do not contain such restrictions. Without such limitations, recipients may be able to receive benefits from multiple sources for the same service performed. For instance, an individual working in a federal agency may be eligible to receive up to $10,000 per year in loan repayment benefits (and up to $60,000 in total) under the Government Employee Student Loan Repayment program (GESLRP), while concurrently qualifying for forgiveness of the remainder of their student loan debt after 10 years of service with a federal agency and 120 concurrent monthly loan payments under the Public Service Loan Forgiveness program (PSLF).109 If the individual applied the benefits received under the GESLRP towards the 120 monthly payments necessary to qualify for loan forgiveness under the PSLF, he or she potentially would be receiving benefits under two programs for the same federal government service.110
108 Ibid., p. 33709.
109 5 U.S.C. §5379; 20 U.S.C. §1087e(m).
110 In such a case, individuals are not making a profit. Rather, they are having more of their loans paid off than is typically expected as a part of these programs.
Another way in which programs can overlap is that multiple programs may be available to the same groups of individuals. Here, the federal government may be funding administrative costs for two separate programs that are serving the same purpose or same group of people. The Nursing Education Loan Repayment Program (NELRP), for instance, provides repayment benefits to, among others, individuals who serve as nurse faculty at accredited nursing schools.111 The Nursing Faculty Loan Repayment Program (NFLRP) is available to individuals who serve as nurse faculty at accredited nursing schools.112 Both programs are intended to increase the number of qualified nursing faculty,113 and both programs are administered by the Department of Health and Human Services, Health Resources and Services Administration (HRSA). However, under the NFLRP, the HRSA grants money to nursing schools that establish their own loan repayment programs and then choose which individuals may receive benefits. These programs may be creating an administrative burden on the HRSA if it is responsible for administering both the NELRP and also granting money to the NFLRP when both programs are available to the same group of individuals and are intended to serve the same purpose.
Congress may consider combining, altering, or abolishing programs that either make available double benefits to individuals for the same service or that are available to the same group of individuals and intended to serve the same purpose.
Many loan forgiveness and repayment programs are intended to encourage individuals to enter into specified jobs, careers, or public service that may otherwise be undesirable or hard-to-fill. While this may be an effective way of recruiting and retaining some individuals who might not have otherwise considered entering such fields, these programs could be providing windfalls for other individuals who would have entered the field regardless of benefit availability.
For instance, there are no limits on the amounts that may be forgiven under certain loan forgiveness plans (e.g., the Direct Loan Public Service Loan Forgiveness program and loan forgiveness following income-driven repayment). Notably, the Direct Loan Public Service Loan Forgiveness program operates in conjunction with the income-driven repayment plans. Some concerns have been raised that certain characteristics of these programs, combined with the large amounts that individuals may borrow—particularly amounts borrowed under non-need-based PLUS Loans made to graduate and professional students—may create situations in which individuals may borrow larger amounts than they otherwise would, knowing that the possibility exists for loan forgiveness.114 Congress may consider whether limits should be established on amounts that may be forgiven under certain loan forgiveness programs.115
111 42 U.S.C. §297n 112 42 U.S.C. §297n-1.
113 In addition, it is possible that there is significant overlap among individuals eligible for these programs and individuals eligible for PSLF, as the types of employment eligible for PSLF are quire broad. This potential overlap in eligibility likely exists in PSLF and other federal student loan repayment and loan forgiveness programs.
114 Jason Delisle and Alex Holt, “Safety Net or Windfall? Examining Changes to Income-Based Repayment for Federal Student Loans,” New America Foundation, October 2012.
115 For example, in his FY2015 Budget, President Obama has proposed capping the amount that may be forgiven under the Direct Loan Public Service Loan Forgiveness program at $57,500. (See U.S. Department of Education, FY 2015 Department of Education Justifications of Appropriation Estimates to the Congress, Student Loans Overview, p. S-15).
Some research indicates that some individuals may take certain positions or enter into certain fields in the absence of loan forgiveness for a variety of other reasons.116 If the goal of loan forgiveness and loan repayment programs is to immediately place individuals in or attract highly skilled employees to specified occupations or service and they are already seeking employment within such fields, then the programs may be considered ineffective, as they may not have played a role in individual employment decisions. However, if the goal of these programs is to create pipelines for future careers or retain highly skilled employees, then the programs may be somewhat effective, as some reports indicate that loan repayment programs do play at least some role in an individual’s choice in staying in a specific job or career.117
To tailor loan repayment programs to more specific needs, Congress may consider implementing more sensitive funding controls, such as more narrowly defining the circumstances in which individuals could become eligible for repayment benefits, rather than giving administering agencies broad discretion in implementation. Alternatively, since many programs are funded through discretionary appropriations, Congress could also direct the use of funds through language included in appropriations measures.
In general, insufficient data are available on federal loan forgiveness and loan repayment programs to assess their effectiveness in achieving program objectives. For many programs, only a limited amount of programmatic data is available. For others, data will only become available once borrowers apply for and receive benefits. Since, for some programs, the period to qualify for benefits spans many years and no benefits have yet been awarded, limited or no programmatic data are available. For example, in the PSLF program, borrowers must remain employed in a public service job for 10 years while making 120 monthly payments on their loans. Borrowers first became eligible to apply for forgiveness benefits under this program on October 1, 2017; therefore, little is known about the forgiveness benefits received under the program based on the experience of actual cohorts of borrowers. In addition, projecting future participation is difficult because borrowers may, but are not required to, document their employment in public service jobs on PSLF Employment Certification Forms filed with the Department of Education (ED). Thus, information available for this program may provide a snapshot of interest in PSLF, but little more.118 Loan forgiveness is also available for borrowers who repay according to the income- driven repayment plans (e.g., income-based repayment (ICR) plan and income-based repayment (IBR) plan) for extended periods (e.g., 25 or 20 years). However, these programs also have not been in existence long enough for borrowers to qualify for forgiveness benefits.
116 See the section of this report titled “Influence of Loan Repayment and Forgiveness Programs on Employment Choices.”
117 Office of Personnel Management, Federal Student Loan Repayment Program Calendar Year 2016, February 2018, pp. 7-8, https://www.opm.gov/policy-data-oversight/pay-leave/student-loan-repayment/reports/2016.pdf. (hereinafter OPM, Federal Student LRP); Glazerman, NIH Intramural Research Loan Repayment Program.
118 For additional information on PSLF, see CRS Report R45389, The Public Service Loan Forgiveness Program: Selected Issues.
There is variation from program to program in the types and amounts of student loan debt that may qualify for debt relief. For some programs, debt relief is limited to specific loan types (e.g., Perkins Loan cancellation), or to specific amounts (e.g., $5,000 or $17,500 for Stafford Teacher Loan Forgiveness). While for other programs, debt relief is available for multiple loan types (e.g., John R. Justice (JRJ) Loan Repayment), or with few limitations on maximum amounts (e.g., PSLF and loan forgiveness following IBR).
Consideration might be given to whether additional limitations should be imposed on the types and amounts of student loan debt that qualifies under loan forgiveness and loan repayment programs. For instance, in recent years, amounts that students may borrow in non-need-based loan aid have increased substantially—particularly due to PLUS Loans being made available to graduate and professional student borrowers.120 In addition, concerns have been raised that the availability of some student loan repayment or forgiveness programs may provide incentives to students to over-borrow more than they would have in the absence of such programs. Should individuals continue to be permitted to borrow non-need-based federal student loans to finance expenses that, according to federal need analysis rules, would otherwise be met by their expected family contribution (EFC), and then have a substantial portion of that amount discharged through federal student loan forgiveness or loan repayment programs? Should limits be established on the amount or type of student loan debt that may qualify for debt relief?
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