The SERVICE Act aims to significantly expand and accelerate Public Service Loan Forgiveness (PSLF) under the Higher Education Act of 1965, while also broadening who can qualify and how payments are counted. Key changes include reducing the number of qualifying payments required for forgiveness from 120 to 96, counting more kinds of payments (including certain lump-sum or mixed payments and a wide array of deferments and forbearances) as qualifying, and allowing a “buyback” option so borrowers can retroactively count months they were in public service but did not make qualifying payments. The bill also broadens who qualifies by treating independent contractors as employment for PSLF purposes, sets a clearer definition of full-time public service work, and provides an online portal and public-service jobs database to help borrowers track progress. Additional reforms include limiting interest capitalization after forbearance, clarifying how payments are counted for consolidation loans, and adjusting certain teacher loan-forgiveness provisions to align with PSLF. Finally, a GAO study would examine automated data-matching options to simplify certification and tracking. Note: While the bill’s title mentions reducing interest rates, the text mainly addresses PSLF eligibility, payment-counting rules, and program transparency; one notable change is limiting interest capitalization after forbearance, which can reduce the cost burden during relief periods.
Key Points
- 1Expanded and shortened forgiveness pathway: Eligible borrowers can qualify for loan forgiveness after 96 qualifying monthly payments (instead of 120), as long as they are employed in a public service job during each qualifying month, and forgiveness does not depend on employment status at the time of cancellation.
- 2Broader and more flexible payment counting: A “qualifying monthly payment” now includes payments under multiple repayment plans (income-based, standard, and other qualifying plans), as well as certain deferments and forbearances. The Secretary must count various forms of payments, including lump-sum or segmented payments that meet minimum requirements, and even allows prepayments to be applied toward future months.
- 3Buyback option: Qualified borrowers can make a lump-sum buyback payment to count previously non-qualifying public-service months toward PSLF, under a detailed process with eligibility rules and payment calculations.
- 4Independent contractors treated as employment: The bill expands PSLF eligibility by treating independent contractors who work in public service as eligible employment for PSLF purposes.
- 5Transparency and data access: Creation of an online portal and a publicly accessible public-service jobs database. Borrowers can see which loans qualify, current payment counts, remaining qualifying months, and the status of any applications or buybacks.
- 6Forbearance and interest treatment: Forbearance periods cannot capitalize interest after they end (reducing ongoing loan costs). This applies to periods in effect at enactment and those beginning after enactment.
- 7Consolidation loan considerations: For borrowers consolidating multiple Direct Loans, the number of qualifying payments will be calculated using a weighted average of prior loans that met PSLF criteria, ensuring credit is fairly allocated.
- 8Teacher loan-forgiveness alignment: The bill revises and aligns certain teacher loan-forgiveness provisions with PSLF, updating references to ensure consistency with the broader PSLF framework (and removing or retooling some prior subprovisions).
- 9GAO data-matching study: A Government Accountability Office study on the feasibility of automatic data-matching for PSLF to reduce the need for borrower certification, including reviewing current progress on automatic matching for military/veteran borrowers. A final report is due within one year of enactment.