Mandatory Spending

Function 500 - Education, Training, Employment, and Social Services

Reduce or Eliminate Public Service Loan Forgiveness

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2021–
  Savings Estimated Using the Method Established in the Federal Credit Reform Act
Change in Outlays  
  Cap PSLF at $57,500 -0.2 -0.5 -0.7 -0.9 -1.1 -1.4 -1.6 -1.9 -2.0 -2.1 -3.4 -12.5
  Eliminate PSLF -0.5 -1.3 -1.8 -2.2 -2.7 -3.1 -3.5 -4.0 -4.4 -4.7 -8.6 -28.3
  Savings Estimated Using the Fair-Value Method
Change in Outlays  
  Cap PSLF at $57,500 -0.1 -0.4 -0.5 -0.6 -0.8 -0.9 -1.1 -1.3 -1.4 -1.5 -2.4 -8.6
  Eliminate PSLF -0.4 -1.0 -1.4 -1.7 -2.0 -2.4 -2.7 -3.1 -3.4 -3.6 -6.5 -21.6

This option would take effect in July 2021.
By law, the costs of federal student loan programs are measured in the budget according to the method established in the Federal Credit Reform Act. The fair-value method is an alternative approach that more fully accounts for market risk; it is included in this table for informational purposes.
PSLF = Public Service Loan Forgiveness.

Federal student loans can be forgiven for a number of reasons. For borrowers participating in an income-driven repayment (IDR) plan, monthly payments are calculated each year based on the borrower’s income and family size. After the borrower has made payments for a certain period of time, usually 20 years, the outstanding balance of the loan is forgiven, although the borrower is liable for income taxes on that forgiven debt.

Borrowers in an IDR plan are also eligible for a second kind of loan forgiveness program, the Public Service Loan Forgiveness (PSLF) program, if they are employed full time in public service. That program provides debt forgiveness after 10 years of monthly payments, and borrowers are not liable for income taxes on the forgiven debt. Neither IDR plans nor the PSLF program impose a limit on the amount of debt that can be forgiven.

This option includes two alternatives that would apply to federal student loans taken out by new borrowers. One alternative would cap the amount of debt that could be forgiven under PSLF at $57,500—the current overall limit on loans to independent undergraduate students. Borrowers with a balance remaining after receiving the maximum forgiveness under PSLF would continue making payments under a repayment plan of their choice, including IDR plans, and, as a result, could receive additional forgiveness after making payments for the required additional time. The other alternative would eliminate the PSLF program. Borrowers would still have the option of choosing an IDR plan and, as a result, could receive loan forgiveness (albeit after making payments for a longer period of time).