Monday, April 10, 2017

Whither – Wither? - Public Service Loan Forgiveness By Jonathan D. Glater

 

It comes as no surprise that some of the most important jobs public-spirited graduates want to pursue do not offer high salaries.  To make these careers feasible for indebted students, Congress in 2007 approved the Public Service Loan Forgiveness program, or PSLF, which provides for forgiveness of student debts of those who make payments on their loans for ten years and work for a qualifying public interest employer.

The trouble is, according to a lawsuit filed in December, the Education Department may be tinkering with the definition of qualifying employer.

The ten-year period will end this fall for early adopters, and now some of those student borrowers who counted on forgiveness say they have been told that they are no longer eligible after all.  Last week, The New York Times ran a disheartening story about disavowals of forgiveness by the Department.

The subject started to get coverage after the American Bar Association filed a lawsuit against the Department in December on behalf of the students who were first told they could benefit from forgiveness, then were told later that they could not. 

The lawsuit, filed in federal court in Washington, D.C., is worth watching.  Changes to PSLF, codified at 20 U.S.C. §1087e(m), could have an impact on the lives of millions of students who rely on its availability when they make hard decisions about all aspects of their lives.  Consider how the possibility of loan forgiveness influences choices about careers to pursue, retirement saving, major personal investments, marriage, children, and where to live. 

No wonder the apparent decision by the Department to move the goalposts resulted in litigation.

According to the complaint filed by the American Bar Association (“ABA”) challenging the Department’s apparent decision that some student borrowers’ employment did not qualify them for forgiveness, some borrowers’ loan balances actually grew while they worked in what they thought were eligible public interest jobs.  They used an income-dependent repayment plan and their payments did not make a dent in the principal.

The student borrowers believed that they would benefit from loan forgiveness because they filed “employment certification forms” and received confirmation that their employment qualified. 

Then, after years of making payments, they received notice that their employment did not qualify – and that this finding applied retroactively, such that payments they had already made would not count toward the ten-year requirement.  The law does not specify an appeals process, the ABA notes.

Why is the ABA suing the Department?  Well, “high caliber employees” will leave or may not work for the organization if such employment does not qualify for loan forgiveness, according to the complaint. 

The Department’s answer asserted that the Department had “ultimate authority to review” actions taken by the company that serviced the loans, suggesting that the Department considered no prior finding of eligibility for forgiveness to be binding.  The Department’s response suggests also that perhaps the servicing entity did not have authority to make the eligibility findings that it had.

Further, the Department “does not make a final decision on whether a borrower has been employed by a qualified organization until the borrower submits an application for loan forgiveness,” suggesting that any interim confirmation of eligibility for PSLF is meaningless.

While the outcome matters greatly to students, the battle is also significant because it implicates the larger question of the extent to which the federal government will subsidize accessibility of higher education.  Loan forgiveness to students in repayment reduces the cost of college, it just does so ex post rather than ex ante as a scholarship would. 

Critics of PSLF warn of the program’s potential cost, at least implying that this subsidy is dangerous because of its expense.  And perhaps a debate over national willingness to put higher education within reach of students ready to work in the public interest is one we should have.

In such a debate, we should take note of the distributive effects of PSLF:  students with higher debts, often students who had less in the way of financial resources to begin with, are the ones who will be most affected by restrictions on the availability of forgiveness.  The forgiveness program constituted a legislative effort to turn indebtedness into an incentive to go into fields that otherwise students might view as unaffordable.

But regardless, those students who have acted in reliance on PSLF deserve to have the promise of the 2007 legislation honored.  They are, after all, working in the public interest.

https://lawprofessors.typepad.com/education_law/2017/04/whither-wither-public-service-loan-forgiveness-by-jonathan-d-glater.html

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