This latest episode in the ongoing saga of Public Service Loan Forgiveness is a testament to the complexity of the federal program and adds a new dimension to criticism of the department’s oversight of it. Tens of thousands of borrowers have applied for forgiveness, but few have been successful. Advocacy groups say the denials signal confusion about the terms and reflect poor management of the program.
Many have complained about a lack of transparency on the part of the Education Department, which the federal agency has tried to address by publishing data on the program and creating an online portal to guide borrowers. But those steps could be undermined by the agency’s recent actions.
A year ago, a federal judge ruled in favor of three borrowers who accused the department of inexplicably changing an employment requirement in the forgiveness program. Among the numerous criteria is a requirement that applicants work for a government organization, tax-exempt group known as a 501(c) (3) nonprofit entity or other type of nonprofit organization such as a public-interest law service.
The borrowers in the 2016 case had been told by FedLoan Servicing, the company overseeing the program, that their work as public-interest lawyers at nonprofit organizations qualified for loan forgiveness. Years later, however, the Education Department said their employers, including the American Bar Association, were no longer eligible because public service was not their primary purpose.
U.S. District Judge Timothy J. Kelly in the District of Columbia said the department had “failed to display awareness of its changed position, provide a reasoned analysis for that decision and take into account the serious reliance interests affected.”
After the February 2019 ruling, the Education Department updated its website and removed references to its “primary purpose” condition for nonprofit organizations. The agency effectively expanded the pool of employers that could be considered under the loan-forgiveness program without publicizing the decision.
This week, the department told the American Bar Association that it is a qualified employer under the forgiveness program. After the association announced the settlement Wednesday, attorneys for the borrowers say they were interested to see whether the department had made note of the changes in the program.
That’s when they noticed that the department’s website once again said that only nonprofits with 501(c)(3) tax exemption or whose primary purpose is to provide public service qualify for the forgiveness program. The reappearance of that language flies in the face of the judge’s ruling, said Chong S. Park, a lawyer at Ropes & Gray who represented the borrowers.
“It appears the department is taking actions that are in violation of and in contravention of Judge Kelly’s order,” said Park, who has not yet raised the issue with the court.
The Education Department said it is working to remove any mention of the “primary purpose” condition from its website and other materials. The agency said that the language reappeared after a recent overhaul of its website but that the department has not used the condition in its evaluations since the 2019 ruling. The department has taken steps to reverse prior determinations that relied on the old employment standard.
Public Service Loan Forgiveness is rife with complexities that can make applying a dizzying experience. To qualify, borrowers must make 120 on-time monthly payments on their loans for 10 years to have the remaining balance canceled. They must have loans made directly by the federal government. And they must be enrolled in specific repayment plans, primarily those that cap monthly loan payments to a percentage of their income.
Any misstep along the path to forgiveness could mean adding years to the journey.
Nearly 127,000 federal student loan borrowers have applied to have their loans canceled under the public-service program, but only 1,565 had received debt forgiveness as of December, the department said this week. Most people were rejected for not meeting one of the many requirements, which means they can reapply once they meet the conditions.