Public Service Loan Forgiveness Program Teters With Unmitigated Disaster

The Department of Education since 2007 has promoted the Public Service Loan Forgiveness Program. I’d certainly mentioned it a lot here and here.

A very interesting lawsuit was filed by the American Bar Association in December 2016. The issue raised isn’t an Obama or Trump administration thing but the view of the Department of Education at large.

In that case the Plaintiffs were upset they had worked for years in fields where their employment would or should qualify under the Public Service Loan Forgiveness program. Under PSLF the federal student loans of applicants would be forgiven tax-free if they made 120 on-time payments. This includes payment made under income driven repayment programs.

The Plaintiffs in that case had received letters back from the Department of Education PSLF program servicer saying their employment met the requirements of the program. Later that ruling was changed.

According to the Washington Post, “more than 550,000 people have signed up for a federal program that promises to repay their remaining student loans after they work 10 years in a public service job.”

FedLoan is the appointed servicer to administer the PSLF program and is responsible for approving PSLF employment certification forms and then transferring the student loans to FedLoan for continued servicing.

In court filings recently, the Department of Education stated that FedLoan certification and qualifying employment letters can’t be relied on even when student loan debtors follow the Department of Education directions. While FedLoan, with the instance of the Department of Education, encourages people to submit annual employment certification forms (ECF) to verify they are on track for PSLF forgiveness, it doesn’t matter.

The the lawsuit filed by debtors and the American Bar Association stated “Borrowers are encouraged to file an ECF each year. This is a way for an employee to verify that her employment qualifies for PSLF and that all of the payments made over the course of the last year of employment count toward PSLF eligibility.” – Source

The response by the DeVos Department of Education was, “The first sentence of paragraph 58 is admitted to the extent that it alleges that FedLoan Servicing encourages borrowers who are qualify for the PSLF Program to submit an Employment Certification Form annually. The remainder of the sentence is denied. Defendants deny the second sentence and aver that FedLoan Servicing’s response to the ECF does not reflect a final agency action on the borrower’s qualifications for PSLF.” – Source

The Department of Education then doubled down on it’s position FedLoan responses to PSLF employment certification forms are meaningless.

The complaint said, “Each time an ECF is approved, the number of qualifying payments that the borrower has made is updated to include payments made during the period of employment that has been certified. An application for forgiveness is likely to be processed more quickly if the borrower has regularly submitted the ECF than it would be if the borrower had not regularly submitted this form.”

The Department of Education responded, “The first sentence of paragraph 59 is admitted to the extent it alleges that each time FedLoan Servicing finds that a borrower’s ECF has documented that the borrower was employed by a qualified public service organization, FedLoan Servicing reviews the borrower’s payment history and updates the number of payments made by that borrower that FedLoan Servicing considers to qualify for the PSLF Program. Defendants deny the remainder of the first sentence and aver that approval of an ECF does not reflect agency action on the borrower’s qualifications for the PSLF Program.”

Did you catch that again “Defendants deny the remainder of the first sentence and aver that approval of an ECF does not reflect agency action on the borrower’s qualifications for the PSLF Program.

And the government responses to the lawsuit by student loan debtors who were hoping for loan forgiveness under the PSLF program get more alarming. “Defendants admit the first sentence of paragraph 60 to the extent it alleges that the Pennsylvania Higher Education Assistance Authority does business as FedLoan Servicing. Defendants deny the remainder of the sentence and aver that the Department has a contract with FedLoan Servicing to provide certain services in connection with the receipt of documents and forms related to PSLF ECFs and applications. Defendants deny the second sentence.”

The Department of Education instructs people to send their employment certification forms to the entity they have a contract with and won’t honor the decision? On the Department of Education website it says “If you would like us to track your progress as you work toward making the 120 qualifying monthly payments for PSLF, send the completed form, with your employer’s certification, to FedLoan Servicing (PHEAA), the U.S. Department of Education’s federal loan servicer for the PSLF Program.”

Since October 2017 marks the first time people will be eligible for loan forgiveness under the PSLF it looks like it’s going to be a true SNAFU (Situation Normal All F**Ked Up). People who have worked for ten years in jobs assuming their loans would be forgiven are potentially going to get some nasty surprises.

In 2016 a bill was presented in Congress to change the PSLF program from an all or nothing approach at the end of ten years, to pro-rata forgiveness every two years along the way. The bill was titled “Strengthening Forgiveness for Public Servants Act.” Guess where that bill went, nowhere.

I’m not sure what advice anyone can give people in the PSLF program at this time. The government’s position is the organization they direct debtors to send their forms for certification has no binding authority to certify employment.

A lot of people are going to get hurt here unless the Department of Education can gets it’s act together.
Steve Rhode
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This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.