I just contacted my Colorado state representatives to ask them to consider changing the implementation of the Colorado Educator Loan Forgiveness program which was put into place by Senate Bill 19-003 (pdf). I’ve written about this program before, and it’s a good program, but the implementation is less than ideal.
I’m including the text of my email below. If you are a Colorado educator (or resident), I urge you to consider contacting your state representatives as well. You can use the text of my email exactly (other than the representatives and your address/phone number) or modify it as you wish.
I live in Highlands Ranch and am your constituent. Thank you for your work in the state legislature.
I wanted to share a concern with you about how Senate Bill 19-003 is being implemented and see if perhaps some changes could be made. This is the Colorado Educator Loan Forgiveness program which offers up to $5,000 of loan forgiveness for a given year. It is currently authorized for five years, which takes it through 2025-26. While I love that Colorado has this loan forgiveness program (in addition to the federal loan programs), my concern is that the money is not being distributed in such a way to provide maximum value to the recipients (as well as maximum bang-for-the-buck for Colorado taxpayers). The way the payments are currently structured is $5,000 spread out over 12 monthly payments of $416.66 each. While this is “helpful” for some, for many (most?) Colorado educators this is not providing $5,000 worth of benefit (and sometimes is providing $0 worth of benefit). Let me give some examples.
Example 1: Teacher with a $30,000 student loan balance, enrolled in PSLF with 36 months toward the 120 needed for forgiveness (including the Covid waiver months), enrolled in the SAVE program with a current monthly payment of $0. (Quite a few folks will have $0 or close to $0 payments under the new SAVE program and the 225% of poverty level, especially in 2024 when they can file their taxes separately for 2023 and undergraduate loan repayments go down to 5% of discretionary income in July.) For this educator, the $5,000 will reduce their outstanding balance to $25,000 after one year (12 payments). But, since they have $0 payments and, even if those go up some over time, will not pay off the $25,000 before they reach 120 months and full forgiveness, they effectively are receiving $0. The full $5,000 is simply being transferred from Colorado’s budget account to the Federal government’s. I have to think this is not what was intended.
Example 2: Teacher with a $30,000 student loan balance, enrolled in PSLF with 36 months toward the 120 needed for forgiveness (including the Covid waiver months), enrolled in the SAVE program with a current monthly payment of $150. Lots of variables here, but a reasonable salary for a single educator with no children who would owe $150/month would be about $70,000. For an educator with one child, they would have to be making about $83,000. Two children: about $100,000. Three children: even more. Etc. For this educator, the $416.66 each month for 12 months would take care of 12 months of payments (and reduce their overall principal), resulting in them receiving the equivalent of $1,800 (12 * 150; because, again, they will qualify for full forgiveness from PSLF before paying off their remaining balance). That’s nice, but obviously nowhere near $5,000. The rest ($3,200) is simply transferred from Colorado’s budget account to the Federal government’s. I have to think this is not what was intended.
Example 3: Teacher with a $100,000 student loan balance (I know a person with this loan balance, payment history, and payment amount), enrolled in PSLF with 90 months toward the 120 needed for forgiveness (including the Covid waiver months), enrolled in the SAVE program with a current monthly payment of $228 (likely will go down in 2024 when she can file separately). For this educator, the $416.66 each month for 12 months would take care of 12 months of payments (and reduce their overall principal), resulting in them receiving the equivalent of $2,736 (12 * 228; because, again, they will qualify for full forgiveness from PSLF before paying off their remaining balance). That’s nice, but obviously nowhere near $5,000. The rest ($2,264) is simply transferred from Colorado’s budget account to the Federal government’s. I have to think this is not what was intended.
There are obviously an infinite number of examples we could generate, but the vast majority of them will have one thing in common: the recipient is not actually receiving a $5,000 benefit.
There are only two scenarios where they actually receive the full amount.
- First, if their total loan balance is less than $5,000, in which case this will pay it off for them and they won’t have to make any additional payments. (Although, actually, they still will not receive the full $5,000, they will only receive whatever their balance is.) For those with a balance between $5,000 and maybe $8,000 or so, the $5,000 might pay down their balance enough that they would pay off their loan before PSLF forgiveness kicks in, so they get a partial benefit (whatever remaining months of payments before PSLF forgiveness they don’t have to make).
- Second, if their monthly student loan payment is at least $416.66. Again, lots of variables go into calculating this payment, but a reasonable salary for an educator with no children to have to pay this much would be about $120,000. One child: $132,000. Two children: $145,000. More than two children: More. As I’m sure you are aware, there are very few educators who are making this much. Which means there are very few recipients of Colorado loan forgiveness that are receiving $5,000 worth of benefit.
So, what’s the alternative? I’m sure there are many, but here are several that I thought of, organized from the most amount of work/overhead for the Colorado Department of Education (CDE) to the least.
- Customized for each borrower
Ask each borrower for their loan balance and current required monthly payment. If their loan balance is less than $5,000, then lump sum it to pay it off. If not, then match their payment exactly. Then each time they recertify their income with PSLF and the payment changes, they would have to update CDE (really, their vendor) and they would have to change the payment to match. CDE’s vendor would also have to keep track of the total disbursement to each borrower in order to stop it when it reaches $5,000. Obviously, this requires a lot of oversight and overhead by the Department of Education (although I would think it’s mostly software). - Borrower chooses the number of payments
Currently the $5,000 is spread out over 12 monthly payments. Instead, allow each borrower to select from:
a) Lump sum: $5,000 one time right away
b) 1 year of payments: $416.66/month for 12 months
c) 2 years of payments: $208.33/month for 24 months
d) 3 years of payments: $138.89/month for 36 months
e) 4 years of payments: $104.17/month for 48 months
f) 5 years of payments: $83.33/month for 60 months
g) …etc.
This would allow them to somewhat customize to their current payment level but without as much overhead for CDE. They select the number of payments they want once, that gets entered into the software, and then there’s no more data entry. - Just give the borrower the money
This is easiest for everyone. Some people might object and worry that people might use the money “inappropriately” or “frivolously” instead of for their student loans. Personally, I don’t have a problem with it. We are forgiving $5,000 in student loans, so once that decision is made, the money is “theirs”. Even if they do spend it in an unwise manner, they will ultimately still be responsible for their student loan payments (bankruptcy doesn’t help with these) so they aren’t “getting away” with anything. This is the easiest for everyone, least expensive (less overhead even than currently because it eliminates making monthly payments), and most flexible for recipients.
I’m sure there are some other ways I haven’t thought of, but I think this is a good start. Again, I don’t know who is “in charge” of this program and is allowed to make decisions around this, or even if the legislature would have to pass new legislation or can just direct CDE to change it’s implementation. But, unless I’m missing something, this would be well worth the effort to make sure this incredible offer from Colorado is both helping recipients as much as was intended and being a wise steward of Colorado taxpayer dollars (and then more of that money will flow back into Colorado’s economy.)
I hope you are willing to explore this idea and I am happy to talk with you further if that would be helpful. Again, thanks for your work in the state legislature and I hope to hear from you soon.
Sincerely,
Karl Fisch
Address
Phone Number
Fisch Financial 