Uncapped Public Sector Forgiveness for Student Loans Could Be a Thing of the Past

Just this past month President Obama has proposed several great changes and several not-so-great changes to the student loan repayment system for 2015. 

This blog-post is specifically focuses on the proposal to cap the Public Sector Forgiveness program [PSLF].  The PSLF is a program for people who have borrowed from the Federal Direct Loan program and designed to encourage people to work for non-profits or government.  Generally, PSLF is treated as an Income-Based Repayment Plan (IBR), where the payments are capped at 15% of discretionary income (basically what you have left after essentials) and after 120 payments (10 years) the remaining loan is forgiven.  To qualify, generally a person must be considered a full-time employee; which the government loosely defines as averaging 30 hours per week ( Department of Education).

The proposed changes are:  (1) IBR is capped at 10% of discretionary income, (2) the amount that is forgiven after 120 payments capped at $57,500, (3) if a borrower owed more than $57,500 time until full-forgiveness increases from 20 to 25 years, and (4) cannot file separate taxes thus income will be based on household (Association of American Medical Colleges, 2014).   

These changes are partly in response to allegations surrounding how Georgetown is taking advantage of the system charging high tuition then encouraging students to work in PSLF eligible positions (Delisle & Holt, 2013; Georgetown Law;  Matthews, 2013; Works, 2013).   Interestingly, this policy debate is shaping up similar to that which tightened bankruptcy laws for student loans, as stakeholders changed laws based on little empirical evidence and mostly rhetoric (Pardo & Lacey, 2008).  

What could that mean for employment in the public sector?  PSLF was designed with the understanding there would need to be an incentive to attract talented people to work in governmental positions, say like the Georgetown educated lawyers, because the pay and total compensation would generally be significantly lower.   The differences in compensation for people hold postsecondary degrees is rather staggering with earnings ranging from -26% to -42%  and total compensation ranging from -25% to -37% (Economic Policy Institute ).   Overall, the research indicates that “College-educated workers on averages earned $22,966 less in total compensation” and that rhetoric surrounding cherry-picked statistics is driving changes in attitudes and policy (Keefe, 2010).  

According to their research and aligning with PSLF ideology, it simply does not pay to gain a postsecondary degree then work in the public sector; in fact it penalizes.

From a higher education perspective this is troubling.   The entry level education needed to enter into postsecondary administration is a Masters’ degree (The Bureau of Labor Statistics).  Mid-level these professionals’ wages average $61,703 with the lowest average wage at $31,000 (Resident Hall Manager) to the highest at $137,864 (Staff Physician).  Two percent of the positions are on average earning less than people who hold a high school degree in the private sector; 58% are paid lower than private sector bachelor degree earners and 97% (Higher Education Jobs) are paid less than private sector workers holding a Masters, although one is generally required to be in these positions.  Even those who are on the top echelons of pay are people who generally need a professional degree like the physician and staff attorney, people who on average own considerably more than $57,500 of debt (Weiss, 2012).

Regardless of position, generally both mid and high level positions could easily go to the private sector and on average earn much more than the $5,750 per year the government would offer if this specific proposal passes.  If passed, this policy could truly force some current employees into the private sector and may actively detour others from attempting employment to start. 

Finally, although not specifically peer-reviewed research but none-the-less part of the conversation, this blog outlines a personal story about how this program may affect this individual; but what is most telling is the qualitative data one can gain by reading the salient comments that indicate that people are really leaning on this program continue to be able to work in non-profit and government positions and are considering public to private sector changes.  

Right now the prospects of this passing through Congress is up in the air,  but people should be aware that it is on the table and could play a significant role in educations’ ability to recruit and retain the necessary talent.  

by Dan Collier