Public Service Loan Forgiveness and the SAVE Plan for Federal Student Loans: Loan Forgiveness Estimates for Teachers and Social Workers

Urban Institute. 2100 M Street NW, Washington, DC 20037. Tel: 202-261-5687; Fax: 202-467-5775; Web site: http://www.urban.org

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Stand Together Trust

Policymakers

Public Service Occupations; Student Loan Programs; Loan Repayment; Federal Programs; Eligibility; Federal Aid

The Biden administration is implementing a new income-driven repayment (IDR) plan for federal student loans called Saving on a Valuable Education (SAVE). The SAVE plan adds to existing IDR plans and reduces borrowers' monthly payments and shortens the time certain borrowers must repay before their debts are forgiven compared with current options. Borrowers who qualify for the Public Service Loan Forgiveness (PSLF) program--which forgives debt for borrowers working in a wide range of government and nonprofit jobs after 10 years--can also use the SAVE plan and are likely to receive some of the largest benefits from the new plan. The PSLF program has historically benefited graduate borrowers most, but the SAVE plan will now allow those with only undergraduate degrees to also qualify for large benefits. These changes are large enough to have ripple effects on other higher education policies and labor markets for certain credentials, especially those in education and social work. This brief examines how much borrowers from two large professions that are typically eligible for PSLF, teaching and social work, could benefit from the SAVE plan. The new plan is likely to subsidize a large share of the debt used to finance education and social work degrees in the coming years. The data show that borrowers with a bachelor's degree in education or social work with the typical loan balance of $32,000 would see their total loan payments drop to less than $7,000 under the SAVE plan and PSLF compared with $20,000 to $24,000 under current IDR options. Borrowers with master's degrees in teaching or social work will also see their total payments cut under the SAVE plan when using PSLF, but the reduction is largest for those with only undergraduate degrees. Larger PSLF benefits may influence students' decisions about whether to take on federal student loans and how much to borrow. For some graduate degrees, such as social work, the federal loan program could end up subsidizing the majority of the cost of obtaining these degrees. In response, policymakers may want to consider whether the current policy that allows graduate students to borrow for the full cost of their degree is optimal and whether new quality assurance rules are needed to guard against programs overcharging for graduate degrees leading to public service careers. Additionally, as PSLF is set to provide larger benefits to a broader set of borrowers because of the SAVE plan, policymakers must ensure that ongoing efforts to improve how the program is administered are successful.

As Provided

2024

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