Federal student loan borrowers who had believed they qualified for loan forgiveness under a particular federal income-driven repayment (IDR) program are suddenly facing a financially shaky future.
The spotlight’s on the Public Service Loan Forgiveness Program due in part to a lawsuit filed by four participants: they fulfilled employment and loan repayment requirements and made employment decisions based on eventual student loan relief only to have those qualifications later reversed.
What is the Public Service Loan Forgiveness Program (PSLF)?
In 2007, President George W. Bush signed legislation creating the Public Service Loan Forgiveness (PSLF) program. The program was aimed at graduates heading into public service careers, such as education, medicine, law, and social work. In general, students who are signed up for IDR programs may have their qualifying student loan debt remaining after 20-25 years of payments wiped out. But students who signed up for the PSLF program could have their outstanding loans forgiven after ten years of payments.
The program was expanded under President Barack Obama, although the Obama Administration also sought a cap of $57,500 (which was never put in place) on student loan forgiveness. The first “class” of program participants should – in theory – be looking forward to student loan forgiveness in 2017.
Those who worked in qualifying jobs and kept up with loan repayments for ten years could have the remaining amounts forgiven by the Department of Education under PSLF. In order to be eligible, graduates had to work full-time for the federal government or for qualifying non-profit or public service agencies.
The program also required 120 student loan payments, made on-time and under a qualified repayment plan. Students could complete and submit an Employment Certification Form for approval; this form verified that their employment and loan repayment schedule were eligible for the PSLF program. Fed Loan Servicing, who handles ECFs for the Department of Education, encourages students to submit the ECF annually.
Now, just as PSLF appears poised to “graduate” its first cohort, it turns out that the financial calculations on which the program have been based on are incorrect. Accordingly, the process that program participants had been following with regard to the ECFs may not meet Department of Education (DOE) requirements for loan forgiveness.
Issues with the PSLF Program
The PSLF program will be more expensive than planned, according to Government Accounting Office (GAO) estimates, and the GAO cites the DOE for miscalculations in making its cost projections. For example, the DOE did not take into account growing enrollment in programs like PSLF. The FY2017 IDR program costs alone are expected to be $74 billion. These miscalculations can make decision-making about federal student loan programs, including PSLF, difficult for Congress and policy-makers.
Growth of the PSLF program has increased quickly. According to the GAO, roughly 4 million students are eligible; about 10% are participating. The number jumped from roughly 25,000 in 2012 to 430,000 in 2016. And participants’ median debt is more than $60,000. By some estimates the principal loan amounts forgiven could climb as high as $108 billion.
And perhaps most significantly, some program participants’ ECFs were later rejected by the Department of Education. Four lawyers who had previously been approved for the program found their forms retroactively rejected in 2016, and they filed a lawsuit. In March 2017, the DOE responded, saying that those Fed Loan Servicing approvals aren’t the DOE’s approvals: “Fed Loan Servicing’s response to the ECF does not reflect a final agency action on the borrower’s qualifications for PSLF.” It’s hard to see how a federal loan servicer working on behalf of the DOE can do the job it was hired to do (certify employment and payment details) only to have the DOE un-do that work – retroactively, no less.
Where Things Stand Now
It’s easy to feel discouraged by the seemingly sudden instability to federal student loan forgiveness programs. Current Department of Education Secretary Betsy DeVos did not make any stated commitment to the PSLF program during her confirmation hearing. Existing PSLF FAQ sheets make no guarantees either; since it’s a program authorized by Congress, and such, Congress can change it.
Reauthorization of the Higher Education Act is due in 2017, and some changes to PSLF may be considered. However, it’s reasonable to believe that current program participants may be grandfathered in and be able to continue participation under the rules they enrolled under. Caps on loan forgiveness were proposed under the Obama Administration, and it’s also reasonable to believe that subsequent administrations or Congress might seek to do the same, based in part on GAO calculations and reports.
Now that DOE calculations can be revised due to the GAO’s work, more reliable financial estimates are possible and can support better and more confident decision-making among Congress and policy-makers. For example, yes, costs increased but a number of borrowers did, too. Also, much has been made of the $108 billion figure, but loan principal forgiveness costs aren’t the same as program costs. IDR programs of any kind are kind of hard to calculate with great confidence because income projections can hard to calculate, especially when people don’t have to complete ECF annually. No one really knows how many borrowers may apply for loan forgiveness after fulfilling the requirements of completing 10 years of employment plus making 120 payments, under the radar of the federal loan servicing company or the DOE.
And the lawsuit filed continues its way through the courts. It remains to be seen whether the DOE’s narrow view prevails, in that some “public service” organizations (such as the American Bar Association, the American Immigration Lawyers Association, and Vietnam Veterans of America, which employed the plaintiffs) are not qualifying employers, and what that criteria is based on. That said, any clarity that’s brought to the issue will benefit current and future participants so that they can make decisions accordingly. In any event, the results are likely to affect a small number of program participants, as formal 501(c)3 (nonprofit) employment is pretty explicitly covered under the program rules.
What the Future Holds
It is completely understandable that any PSLF enrollees are feeling nervous about the continuation of the program and their participation in it. The estimates for program costs and principal forgiven are higher than anticipated, and the DOE seems able to retroactively reject previously-approved employment and repayment activity. Only time will tell whether Congress makes any changes to the program going forward and if the lawsuit currently underway validates DOE actions. Until then, PSLF participants seeking loan forgiveness may continue fulfilling their employment and repayment requirements and hope for good news.