Public servants denied student loan forgiveness by the U.S. Education Department may have a new avenue for appeal following a recent court decision.
A federal district judge ruled Friday in favor of three borrowers who accused the Education Department of changing an employment requirement for 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.
“These changes were arbitrary and capricious,” Judge Timothy J. Kelly wrote in his ruling. “In adopting the new standards, the Department failed to display awareness of its changed position, provide a reasoned analysis for that decision and take into account the serious reliance interests affected.”
Although the final decision on loan forgiveness is in the hands of the Education Department, Friday’s ruling could lay the groundwork for borrowers who were denied loan forgiveness after being told they were eligible to appeal.
Each of the borrowers in the case filed in 2016 had been told by FedLoan Servicing, the company overseeing the program, that their work as public-interest lawyers qualified for loan forgiveness. Years later, however, the Education Department said that their employers were no longer eligible and that assurances from FedLoan were worthless. The federal agency adopted new standards for whether a not-for-profit organization qualified as public-service organizations, without informing the borrowers.
“This has much wider ramifications beyond those for the plaintiffs in our case,” said Chong S. Park, an attorney at Ropes & Gray who represented the plaintiffs. “The decision provides a ray of hope for individuals working towards, or who have been denied, public-service loan forgiveness.”
Education Department spokeswoman Liz Hill said in an email, “The Department is reviewing the different issues raised by this decision and is consulting with the Department of Justice regarding next steps.”
FedLoan referred all questions to the Education Department.
The Education Department rejected the three student borrowers — Geoffrey Burkhart, Kate Voigt and Michelle Quintero-Millan — as they were either halfway through or at the tail end of meeting the payment requirement. By that point, they had made career and financial decisions with the understanding that forgiveness was within reach, like many participants in the program.
The Education Department argued that its rejection did not have “an immediate or significant practical effect” on the borrowers because the rejection of their employment was not a definitive denial. The attorneys could theoretically find other qualifying jobs and spend several more years working toward loan forgiveness.
“This is nonsense,” Kelly, the judge, said of the Education Department’s argument. “The individual plaintiffs structured their careers and long-term financial plans around their eligibility for the [Public Service Loan Forgiveness] program.”
Kelly’s ruling gives the three public-interest attorneys grounds to request the Education Department reinstate their eligibility and consider their application for loan forgiveness. The judge rejected the claims of a fourth borrower in the case, concluding that the Education Department had not changed rules that applied to the claim.
Voigt called the ruling “an important step in the right direction.”
“The Department of Education was acting inappropriately and unfairly with respect to fulfilling its promises to me and other borrowers,” she said. “This program was meant to encourage people to take public-interest jobs, and it is my hope that the Department of Education decides to do the right thing for the people who have dedicated their careers to public service.”
Voigt has worked for the American Immigration Lawyers Association for more than seven years, educating the public about issues facing immigrants in the United States. In 2014, she received notice from the Education Department that her work was no longer eligible as a “public education service” because it wasn’t provided in a “school-like setting.” The vague explanation gave little solace, so she filed a Freedom of Information Act request to learn more, only to receive 198 pages of redacted information.
Friday’s ruling arrives amid growing frustration with the Public Service Loan Forgiveness program. The Education Department has approved barely 1 percent of the tens of thousands of applications for loan forgiveness submitted by public servants. Critics of the federal agency say the denials signal confusion about the terms and reflect poor management of the program.