Finance Everywhere

Fidelity partners with Summer to facilitate PSLF applications before waiver expires

  • The Public Service Loan Forgiveness program (PSLF) was designed to help public sector employees have parts of their debt forgiven, but implementation proved challenging.
  • We take a closer look at the issues within the PSLF program, which stemmed from a mixture of marketing problems and poor understanding about the requirements of the program.

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Fidelity partners with Summer to facilitate PSLF applications before waiver expires

As the 31st of October deadline approaches, many people who could apply for the Public Service Loan Forgiveness program (PSLF) thanks to the temporary waiver are about to run out of time. Before they do, we break down what the waiver promised, the difference it has made and new partnerships that are bringing PSLF to more employees than ever before. 

The program began in 2007 as a ‘thank you’ to employees in the sector. Some of the high-level requirements included experience of 10 years and regular payments on loans during that time. The full set of requirements included:

·         Working in a public-sector job

·         Making 120 on-time student loan payments

·         Participating in a qualified repayment plan

·         Having a specific type of loan, known as federal Direct Loans

If the application was accepted, the rest of the debt was forgiven. Although the pitch was attractive, the implementation was far from perfect. Data from the Department of Education showed that 99% of the applications were denied. 

This meant that all the nurses, teachers and first responders that qualified for the loan were unable to access it. The absence of adequate information at appropriate forums as well as confusion about the application process were key causes of the high rejection rates.

The waiver announcement

Things looked up last year when the Department of Education announced an overhaul of the program. US Secretary of Education Miguel Cardona said “borrowers who devote a decade of their lives to public service should be able to rely on the promise of Public Service Loan Forgiveness. The system has not delivered on that promise to date, but that is about to change for many borrowers who have served their communities and their country.”

Paired with this announcement was a limited PSLF waiver which “allows all payments by student borrowers to count toward PSLF, regardless of loan program or payment plan.”

Set to expire on October 31st, 2022, the waiver is meant to solve many of the issues that popped up before. Key differences are highlighted in the image by Federal Student Aid below:

Table describing the differences between the normal PSLF requirments and the extended ones through the waiver. Main differences are: 
a) Payments on Direct, Perkins FFEL loans are also accepted
b) Payments through any repayment plan are accepted 
c) Late or partial payments will also count
d) Applicants can be eligible even if they were not employed by a qualifying employer at the time for applying for forgiveness.
e) Period of service for TLF can count towards PSLF as long as you certify employment for that period
Source: Federal Student Aid

Simply put, the waiver allows more borrowers to apply and qualify. But despite the improvements, the program’s past is still lurking in the background. Let’s figure out why.

The problem statement

Issues within the PSLF program stem from a mixture of marketing problems and poor understanding about the requirements of the program.

Summer provides digital solutions to employers that help simplify the cognitive and administrative load within student loan forgiveness applications. Their solutions work for the employees by finding them the right program and guiding them through the application process. For the employers they handle the administrative workload.

A Maze for the Borrowers

Will Sealy, Summer’s CEO and founder, says borrowers are affected by two problems in the PSLF program:

a) A marketing issue: Not enough people who are eligible are applying for the program.

b) Assistance is scarce: The fact that even those who are applying aren’t getting accepted is an assistance problem. When people apply, they can make mistakes lining up requirements for the application.

“At a very high level, you need to have the right repayment plan. For every single year over the course of 10 years, at a minimum accounted for by a signed employer. You need to make sure that you have the right loan type, and you must consolidate and change a different older loan into a newer qualifying loan if it does not qualify,” according to Sealy. 

Employers face issues as well

Historically, putting PSLF on a benefits roster meant taking on a lot of administrative workload with little pay off. “This could be 10 forms, 1 for every year per employee. They also must fill out forms for former employees who need verification from previous employment and must build the forms for the onboarding new employees,” added Sealy.

“This was previously a paper-based process. It can slow the process down. If an employer was waiting to get a number of these applications approved, they could get lost or things could be done incorrectly,” noted Deborah Frey, SVP and Head of Analytics at Fidelity Investments.

Frey has extensive experience working with the public sector and emphasized that managing administrative burdens is ‘paramount’. 

The value of doing it right

Not-for-profits compete with private employers by curating good benefits programs. “Not-for-profits come to us and say, we can't pay the same as the private sector. So, we put a lot of emphasis on benefits to help these individuals make the decision,” said Sealy. One of these benefits can be PSLF, says Frey from Fidelity Investments.

Fidelity Investments is partnering up with Summer, to allow Fidelity’s not-for-profit clients an inroad into the firm’s services. “Together we were able to approach the not-for-profit organizations that Fidelity serves and make them aware of this opportunity to help their employees, with education, tools and resources should they pursue loan forgiveness,” said Frey.

By helping employees access a tool that simplifies student loan forgiveness application, employers can serve as a facilitator and source of information for their workers. “You've got individuals who have chosen a career path with purpose. Whether it's a nurse, a college faculty member, or a physician. They come to their employer looking for something beyond traditional benefits,” said Frey. By focusing on these needs, employers can build a competitive offering that is good at retention.

As a locus of information, employers can go beyond the trappings of their traditional role and can think more holistically about employee health and wellbeing. “We've been noticing employers focusing on the total well-being of their employees. Beyond financial health, but putting the mental, the physical, and the emotional health together as a broad offering,” said Frey.

What will it look like?

With the new partnership, nonprofits can access Summer in two primary ways:

a) The Streamlined Version: users can get a “streamlined” version of Summer, in which some of the marketing support and additional tools will be unavailable, but employees can individually pay to receive Summer's PSLF service for a nominal fee.

b) The Comprehensive Version: Here employers can get access to all the supporting tools that Summer offers in their broader ecosystem. Employers pay on a sliding scale from $0.50 to $2.00 per employee per month, depending on their size, in order to receive access to a dedicated team of specialists to support them across all of Summer's student loan savings solutions for employees.

Looking under the hood

Let’s say person X has $100,000 in student debt.

With President Biden’s new announcement $10,000 might get forgiven. So now they are left with $90,000.

According to Will Sealy, PSLF saves people an average of $70,000.

That leaves them with $20,000.

After the $70,000 is canceled, the employee may be left with $20,000 of private loans.

Here, Summer is able to step in and offer refinancing options through private banking options like Sofi and First Republic. When these entities refinance a loan to a lower interest, employees can capture that interest into savings, hence paying less interest over the duration of the loan. 

One key part of their service is simplification. Without guidance people can get rejected because of “tricks and traps like slashes instead of dashes in the date of the signature line”. To avoid this, Summer provides a UI that helps with entering data without the risk of dealing with these unknowns. 

The research behind its interface comes from Yale University. “We launched summer with our first partner being Yale University. They were our first client and we built it with them. When we did, we leveraged all their resources, including behavioral psychologists, behavioral economists, UX experts etc. We learned from the best of the best in terms of practices about guiding people through confusing issues.” The pictures below give some insight into the customer journey: 

Screen grab of how employees can create their profiles through the new partnership.
Screen grab showing the home page for the PSLF certifications. 
The interface is broken down into simple steps and easy to navigate tabs.
Source: Summer and Fidelity Investments

One thing that rose to the fore is cognitive load. When employees were presented with a program that spit out 5 recommendations, people were less likely to enroll. Wonder why? Consider that from Summer’s perspective the choices were being dialed down from 120 to 5, for the employee they were going up from 0.

Instead, when the company picked the “most consequential program” for the employee and made them chip away at the application without knowing how many more applications lay ahead, people were three times more likely to enroll in a beneficial program.

News in the air

While the waiver is set to expire soon, student debt is not going to disappear by October 31st . One hundred lawmakers are already pushing for an extension on the waiver asking for an extension till July 1, 2023.

Data by the Student Borrower Protection Bureau shows that only 15% of the 9 million public service workers with student loans have filed to track their payments under the PSLF. It also shows that 91% of the borrowers that were able to benefit from the program were only able to do so thanks to the waiver.

Action taken now by public sector employers will have a positive impact on their employee’s financial wellbeing in the long term. While deadlines can come and go, other realities about student debt are more persistent. “The more student debt you have, the less money you put into retirement, the data shows it, it is fact,” said Sealy.

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