By Anna Blanch Rabe
Over the last six months or so, there have been increasing rumblings about the Program for Student Loan Forgiveness (PSLF) and whether or not the reliance that some 550,000 people have placed on the program, since it was launched under the Bush Administration in 2007, was misplaced.
The program generally covers people with federal student loans who work for 10 years for government or nonprofit organizations, including public schools, National Parks, museums, public hospitals, fire stations, and the military. Those seeking loan forgiveness are required to make 120 loan repayments derived from an income-based repayment plan during those 10 years.
Now, just as the first potential beneficiaries of the program reach their 10 years of eligible work, there are appears to be confusion–even from within the Department of Education (DoE) who is responsible for overseeing the program. The DoE has suggested that approval letters sent by the program administrator, FedLoan Servicing, to program participants are not binding and can be rescinded at any time. These statements about the non-binding nature of approval letters come from a legal filing submitted in the last two weeks in response to a complaint brought by the American Bar Association (ABA) in the United States District Court in Washington in December 2016. ( Here’s the full text of the law suit.)
The ABA is complaining on behalf of itself and four program participants, but any legal decision is likely to be more broadly relevant. It is likely to be significant for any other non-profit organization that had its eligibility as a Public Service Organization (PSO) revoked and any employee who had the Employer Certification Form (ECF) filed, and approved, and then retroactively rescinded.
The reversal of approval decisions leaves many high and dry
The retroactive aspect of these decisions and the DoE’s response to the complaint are worrying for many. The plaintiffs have alleged that the DoE acted “arbitrarily and capriciously” in making decisions about which employers qualified. The key issue is that participants had been told by the administrator that their jobs qualified for the program, only now (in some cases up to 10 years later) to be informed that this is not the case. The reversal of the approval decisions by FedLoan Servicing and defended by the DoE has been accompanied by very little explanation and no identifiable appeals or review process.
The Consumer Financial Protection Bureau estimates about 25 percent of the nation’s work force could be eligible but DoE data indicates only 553,000 borrowers have submitted at least one certification form to FedLoan and received an approval letter.
It is fair to say that many who have applied for employer certification in the hopes of utilizing PSLF have made employment and financial planning decisions based on how they believed they program operated, and specifically the approval letters they received. This often meant taking lower paying public service jobs, which was exactly what the program was designed to encourage.
Military-connected folks affected by abrupt reversal
Jessie Kelly, a civilian attorney with the Army, is conflicted: “I’d like to think I would not have made a different career decision. I had always planned on going into public interest work, but when one of the only financial incentives is taken away for staying in the field, you certainly have to rethink your future.”
For Kate Hudson, a federal government attorney and military spouse, the situation could not be more clear cut: “I would definitely have made different choices. Although I very much feel ‘called’ to public service, my ability to choose other employment would have colored my career decisions along the way since 2008 when I graduated law school. I turned down more lucrative private sector employment to stay on the public/non-profit sector for my loan repayment program. Often my pay was so low in public service that my [income based] payments were below $50 a month.”
Part of the uncertainty lies in the fact that eligibility is based on a participant borrower’s employer and whether it meets the program’s rule for public work–not on the specific work an applicant does. The regulation (34 CFR 685.219) currently defines a PSO to include an organization that is registered as a 501(c)(3) or a private not-for-profit organization who engages in one of the defined multiple public service fields, including public interest law.
A lack of transparency hurts those in the military community
As of 2016, the ABA has contended that the Department of Education began interpreting the regulation as requiring the private entity to not only provide public interest law services but the provided service must also be the “primary purpose” of the organization. Kenneth Strickland, from Equal Justice Works, explains that the ABA is arguing that “this fresh interpretation of the regulation, without changes to the regulatory language, is a violation of § 706(2) of the Administrative Procedures Act (APA), and the 5th Amendment right to Due Process.”
Lack of information and transparency has seemingly been a feature of the program since its beginnings. “At the beginning the only information available was a tri-fold pamphlet and a 1-800 number. I eventually found a person that walked me through the process, but I believe that they were also not being given all of the necessary information,” says Maj. Jeniffer Cox, US Army.
Only certain types of federal loans qualify, meaning that borrowers often need to restructure or consolidate their student loan debt to make it eligible. But that restructuring wasn’t always clearly explained. Cox and her husband (a mobilized Army reservist) found out eight years after first restructuring her loans (totaling close to $140,000) that none of her years of service would count for PSLF because of the type of repayments she had been making.
Maj. Cox says, “Giving that person the benefit of the doubt has saved me a lot of heartache, because if they knew that I was on the wrong repayment and still processed it telling me that I was all set, I would have an immense amount of anger.” Her willingness to acknowledge that she wasn’t the only one dealing with vague information doesn’t ameliorate all of her frustration: “There was little information and less guidance available about the process. At the time, I filled out all of the required paperwork and was told by the DoE that there was nothing else I needed to do except to make the payments as scheduled. Last year I submitted a certification form and was told that none of the payments I’d made since 2008 were qualified because they were not done on the income based repayment (IBR). Additionally, I was told that if I switched to IBR now, my payments would nearly double, and I would not have enough payments left to qualify for loan forgiveness. Long story short, after almost eight years of qualifying service and what should have been qualifying payments, I will still end paying the full amount because of bad information from the DoE.”
Loan repayment issues can have dire effects on cash-strapped military families
Borrowers are encouraged to submit a new certification form each year but don’t appear to be required to do so. Now, even those with approval letters are unsure of their reliability and whether their years of service will be eligible.
A former legal aid attorney, assistant public defender, and adjunct professor at a non-profit university, and now a federal government attorney, Kate Hudson is very concerned that some of her years of service will be invalidated retroactively explaining that the impact would be likely devastating for her military family:
“Saying that invalidation would have a severe financial impact on my family would be an understatement. I am just over six years into the ten year service obligation. Were I placed on the non-PSLF eligible payment plans, my monthly loan payments would be more than $2,000 per month–and I went to state schools and had a full ride for my masters and a half ride for my law school degree. Additionally, this would put me more than nine years behind on where I would be in paying off my school debt, as I would have made full on loan payments beginning in May 2008. If my six years of service were invalidated, I would be starting even further back, as interest has continued to accrue on my loan balance since 2008. It would be an incredible financial hardship on my family and would prevent us from buying a home, fully funding our retirement, saving for the education of my children, and our monthly discretionary expenses. It would be unsustainable for me to stay in public service financially. In all likelihood, it could also lead to my husband staying in the Army much longer than his 20-year mark, coming up in 2023.”
The current certification system “exposes those undertaking public service work — exactly what Congress intended them to do — to crippling financial risk,” said Linda Klein, president of the ABA.
Failure in the PSLF could negatively impact military retention
For Jessie Kelly, a civilian attorney with the Army, this is about retention: “PSLF and it’s continuance should be a non-partisan issue. Our government should be encouraging students and graduates to go into public interest. […] But if this program is eliminated, a program on which both my husband and I have heavily relied, we may be forced to leave the Army life and seek higher paying employment.”
The ABA lawsuit is challenging the lack of a formal appeals process for challenging adverse employer eligibility determinations. Notably, the Federal Ombudsman program, established by the DoE to provide neutral arbitration for student loan matters, is not equipped to deal with PSLF issues. At the moment there is no way to appeal the letters rescinding approval of an employer retroactively.
The impact on military families is sobering and isn’t just limited to those personally affected but could impact future generations. As Maj. Cox explains:
“The impact on our finances is that instead of having two remaining years of payments, my loan will not be paid off until 2033, and I will be eligible for retirement in 2025. I did not join AD because of PSLF, but we have relied on the PSLF to plan when/how we would strategize our financial planning. Finding out near the end of the payment period is detrimental, because now 8 years of strategizing is out the window, and we need to redo our financial plan. We have two children and this will ultimately impact the amount that we have saved for their education.“ For Jessie Kelley, a civilian attorney with the US Army and a military spouse: “This could potentially have a dire impact on my family’s financial future. Throwing all of our money at our student loans means we cannot save for a house, our daughters’ college fund, or our own retirements. The PSLF program, along with the required income based repayment plan, makes it possible for us to manage our student debt as of right now and still put a little away for savings each month.”
Kate Hudson could be dealing with forced geo-bacheloring and additional costs, saying, “ I would not be able to PCS with my husband were he to be stationed somewhere with lower employment prospects or salary market rates than where we live currently–let alone if I would even be able to escape taking another [expensive] bar exam or the arduous bar waiver process […]. This would also lead to a separation of my two young children from their father for a period of two-three years if it occurs.”
Military families hope the government will keep its promises
No one has yet been denied loan forgiveness under the PSLF because technically no one can be eligible until October 2017. What is clear is that some of those who have received letters rescinding the previous Employer Certification Form approvals have been informed that some of their payments (toward the 120 required payments) are not able to be counted. It is also true that many–including those who worked for government organizations–are waiting the outcome of the pending lawsuits with interest.
For Hudson, this is an issue of trusting that the government will uphold its end of the bargain. “PSLF enabled my family to make sound financial decisions, believing the government would honor its promises. I have jumped through all of the logistical hoops, filing taxes separately, filing for annual certifications, and staying current on efforts to restrict or eliminate PSLF altogether,” she says.
“This issue is vital to my family’s present and long term future. I have spent years serving the underprivileged and marginalized people of this country in the name of public service, in multiple states and duty stations. PSLF allowed me to take those jobs, serve, and rely on the financial promise of the federal government–as hundreds of thousands, perhaps millions, of other Americans have in order to serve.”