mini graduation cap on US money -- education costs
A part of President Barack Obama’s 2015 budget proposal could have implications on student debtors working in public service or nonprofit positions.

Part of President Barack Obama’s proposed 2015 budget has some student debtors—specifically those working for public service and nonprofit organizations—nervous.

The budget would bring a big change to the Public Service Loan Forgiveness (PSLF) program, which allows public servants (like teachers, law enforcement officials, government workers, public health workers, and more) and employees at 501(c)(3) nonprofits to see the remainder of their federal student loan debt forgiven after 10 years of repayments. (Private loans do not qualify for the program). The policy was put in place in 2007, so nobody enrolled in the program has yet seen its benefit.

The Obama proposal, however, would put a cap on the amount which can be forgiven at $57,500. That means that some debtors with debt greater than that total after 10 years would not see their outstanding debt disappear.

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I spoke with two student debt experts—lawyers Adam Minsky of Boston and Heather Jarvis of North Carolina—about the proposal.

In online forums, and in some of the emails Boston.com has received in our call for student debt stories, people currently enrolled in PSLF have expressed concern as to whether they would see loans already in repayment subjected to the cap if the proposal came to light. However, both Minsky and Jarvis think it’s extremely unlikely that any change to the program would affect current debtors. Instead, current debtors would likely be grandfathered in to the current capless system.

They point to the fact that the promissory notes students sign specifically mention potential forgiveness programs—meaning it might be illegal to simply pull an about-face. What’s more, they say, it’s hard to imagine such a blatant act against people who may already be several years into the PSLF program, which would amount to pulling the rug out from underneath a generation of public service workers. Student debt website Educated Risk also sites an education department spokesperson, speaking on background, as saying the proposal would not affect current borrowers.

So it at least appears that current debtors shouldn’t worry too much about falling subject to the cap. Still, Minsky and Jarvis say, the cap proposal could have major negative effects on future students looking to go into public service or nonprofit work.

To be clear, $57,500—the proposed cap for forgiveness—is still a lot of money to get rid of. However, it might not represent very much at all for a number of student debtors. That’s because of the conflation of a few factors.

The first: PSLF only requires minimum payments in order to see forgiveness. Those eligible are also able to use the government’s income-based repayment or pay-as-you-earn options, which allow for monthly loan payments to adjust based on what the debtor owes. But many public service or nonprofit positions don’t pay very much in the first place, and so debtors payments wind up barely putting much of a dent in their total debt, nevermind the principal.

Which segues into point two: Due to high interest rates and low monthly payments, it’s imminently possible for somebody making payments under PSLF to see their debt basically stand still or even increase over the 10 years of payments. So if somebody graduates with, say, $80,000 of debt, it might seem like it would be very easy for them to knock that down to $57,500 by the time the 10 years is up—but in fact, their debt might actually be even higher than the $80,000 total they started out with. (The proposal could be looked at as an incentive-by-fire for public service workers to make larger payments during their repayment period, so as to be under or near that $57,500 line when their 10 years are up.)

And finally, it’s worth noting that many public service jobs—like many positions in school systems, for example—require students to earn an advanced degree. So while it’s easy to say students shouldn’t have taken on so much debt in the first place, that’s not really fair when some positions require expensive graduate degrees.

The voices of those debtors, however, don’t appear to be at the heart of the proposal. Instead, the rule change appears to be meant to target colleges themselves. The idea is that under the current system, schools might feel empowered to keep on raising tuitions if they think they can help students find jobs that would qualify for forgiveness. The New America Foundation, which spearheaded much of the president’s proposal, highlights a program at Georgetown Law School (legally) gamed the system to make a Juris Doctorate essentially free for both the student and the school—thus putting the cost of an elite law school education almost entirely at the expense of the federal government. By capping forgiveness, theory holds, schools wouldn’t be able to sell forgiveness as a possible out from all the debt students incur, and thus might be less tempted to raise tuition.

Few would say schools and their ever-rising tuition prices are without plenty of blame as student debt continues to balloon. And Minsky and Jarvis, the student debt experts I spoke with, acknowledged programs like Georgetown’s might constitute a problem. But Minsky says capping forgiveness for everybody enrolled in PSLF programs ignores the majority of those who stand to benefit from the program, whose degrees are worth a lot less than a Georgetown law degree—like teachers, guidance counselors, and those who work at foundations or charities.

Jarvis adds that if the idea of the proposal is to use caps to deflate tuition, it‘s probably too early to say it would even work. She points out that it will still be a few years before anybody sees loan forgiveness under PSLF, and that hasn’t stopped colleges from raising tuition year after year.

Minsky and Jarvis caution that the president’s budget proposal is just that—a proposal. In the current divided political climate, it’s at least as likely that any budget proposal flunks rather than passes.