Loan forgiveness programs reject nearly all applicants and tax the rest

Evidence

If she’d worked as a special ed teacher in a public school for ten years, she might qualify for Public Service Loan Forgiveness (PSLF), which would discharge her remaining loan balance tax-free. At least, that’s the idea. In practice, 99 percent of applications for Public Service Loan Forgiveness were rejected in the program’s first year, which spanned from May 2018 to May 2019;40 this year, that number has crept down slightly—to a little over 97 percent. Assuming Veronica doesn’t qualify for PSLF, she may be able to get the balance of her loan forgiven after twenty or twenty-five years of on-time payments under her income-based plan—but since the amount of the forgiven debt will be treated as income, she’ll be hit with a potentially massive tax bill. — Dorothy A. Brown, The Whiteness of Wealth, 313

Categorization

• QUESTION: Why do 97-99 percent of PSLF applications get rejected? Structural design, paperwork burden, or eligibility rules that disproportionately exclude borrowers like Veronica seems worth pinning down.
• SEED: Angle: forgiveness programs that sound generous but route most beneficiaries into taxed debt — a mechanism-by-mechanism breakdown usable for an article on how nominal relief provisions are actually engineered to fail.