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Why people are being denied public service loan forgiveness


A trove of data released this week by the Education Department shows the agency has approved barely 1 percent of the tens of thousands of applications for loan forgiveness submitted by public servants.

Higher education experts say the denials signal confusion about the terms of forgiveness and reflect poor management of the program. The latest data, an update from the second quarter, show a continued influx of applications, the vast majority of which are being denied.

As of Sept. 30, more than 41,200 federal student loan borrowers had turned in nearly 50,000 applications to have their loans canceled under Public Service Loan Forgiveness, a program that cancels federal student debt after 10 years of on-time payments for people who take public-sector jobs. Only 423 of those applications have been approved, and just 206 people have received debt forgiveness to the tune of $12.3 million in total, according to the Education Department.

The high rejection rate has sparked concerns among people banking on the program to alleviate their debts. Thousands have made borrowing or career decisions based on the promise of loan forgiveness, and the paltry level of approvals has left some wondering about their own chances.

But at this stage in the program, few people could reasonably be expected to qualify for forgiveness. The program was rolled out in 2007 during President George W. Bush’s administration as a way to entice college graduates to go into teaching, law enforcement and other public service jobs. It requires borrowers to have loans made directly by the federal government, but until 2010 most federal loans were originated by private lenders. Applicants must also be enrolled in certain repayment plans — primarily those that cap monthly loan payments to a percentage of their income. But most of those plans came about only in recent years.

“There just shouldn’t be a lot of people eligible at this point,” said Betsy Mayotte, president of the nonprofit Institute of Student Loan Advisors. “There are a small number of people who could have checked off all of the boxes in the last 10 years.”

The Education Department said 72 percent of processed applications were denied because borrowers did not meet at least one of the program requirements. Many people were turned away for having the wrong type of federal loan — those originated by private lenders through the now defunct Federal Family Education Loan Program. Those loans can be consolidated into the Direct Loan program, but only payments made after the consolidation would qualify for forgiveness.

Other people were enrolled in the wrong repayment plan or had not made enough on-time payments. Some of those borrowers could still receive forgiveness with a few more years of qualifying payments, according to the Education Department.

Still, the flood of applications and denials signals underlying communication problems with the popular forgiveness program. Advocacy groups and government watchdogs say the loan servicing companies that the Education Department pays to manage its $1.4 trillion student loan portfolio provide inaccurate information to borrowers.

People have complained to the Consumer Financial Protection Bureau about FedLoan Servicing, the company overseeing the program, processing payments incorrectly or botching paperwork. Those mistakes could lead to additional years of payments or rejected applications. Mayotte said many of the borrowers she works with have complained of FedLoan not counting their payments that qualify for forgiveness and taking up to a year to review appeals.

FedLoan spokesman Keith New said the company is working within the confines of requirements of the forgiveness program and its contract with the Education Department.

“Unfortunately, the vast majority of complaints that we receive across the spectrum of programs that we service turn out to be related to something that is beyond a servicer’s control, such as dissatisfaction with a policy that is mandated by the terms of their program — sometimes going back to legislation — or they have not yet qualified for a benefit,” he said, in an email.

New said the loan servicing company is working with the Education Department to simplify and enhance the program rules.

Mayotte says all stakeholders in the program share responsibility.

“There is a lot of blame to go around,” Mayotte said. “The Department of Education could have done a better outreach job [as could have] the players in the student loan industry. There were also a lot of consumers who had this vague notion that after 10 years their loans would just be forgiven, and they didn’t dig down into the details.”

The Education Department said it agrees communication could be improved and hopes its recently launched help tool for the forgiveness program will address some of the issues. The federal agency also encourages borrowers to submit an employment certification form — a document that verifies their job — early in the process, which would help the department track whether they are meeting requirements.

Abby Shafroth, an attorney at the National Consumer Law Center, contends the certification program was not available early in the program, “so there are many people who could have thought they were in compliance for a long time.”

She said more automation in the student loan program to help borrowers enroll in the best repayment plans could mitigate some problems.