The public service loan forgiveness (PSLF) program offers big benefits and bad incentives, writes New America’s Jason Delisle in Zero Marginal Cost. For graduate students planning careers in teaching, social work and government, it’s likely “the federal government will finance the entire cost, without limit, including all living expenses.”
Combining PSLF with Income-Based Repayment encourages graduate and professional students to borrow more and sign up for degree programs of questionable value. Colleges will be able to raise tuition once borrowers realize they’re not going to have to pay back their loans.
At a minimum, lawmakers should cap loan forgiveness under PSLF at $30,000, aligning it with the limit for Pell Grants to low-income undergraduate students. (There is currently no limit.) The federal government should not provide more in loan forgiveness to graduate students than it is willing to provide in grant aid for a low-income student to pursue an undergraduate education.
There is also a case for eliminating PSLF altogether. Because IBR makes any loan size affordable, PSLF isn’t a necessary component of the insurance IBR provides. Rather, it makes IBR do double duty as generous graduate school tuition assistance for those who want to work in non-profit or government jobs—even high-paying ones.
Teachers can use several, overlapping loan forgiveness programs, if they can navigate the complex, confusing federal aid system.