The report on the Public Service Loan Forgiveness program arrives as the Trump administration has proposed ending the federal benefit. The program, which wipes away federal student debt for public servants after they have made 120 monthly payments or 10 years’ worth, has been criticized as a backdoor subsidy for graduate school. It has also received flak for helping doctors and lawyers who have the earning potential to repay their student loans.
Cordray argues that of the more than 500,000 people the Education Department said are on their way to receiving forgiveness, almost two-thirds earn less than $50,000 a year and 86 percent take home less than $75,000 annually. The George W. Bush administration introduced the program in 2007 to encourage college graduates to pursue careers as teachers, social workers, public defenders or rural doctors — public service fields that traditionally pay low wages.
Participants must enroll in a qualifying repayment plan, which are primarily those that cap monthly loan payments as a percentage of income. Any payment made before enrollment does not count toward forgiveness, a critical piece of information that some borrowers say their loan servicer neglected to mention, according to the CFPB. Others complained of being placed in ineligible payment plans even after identifying themselves as a public servant, a misstep that delayed their ability to obtain forgiveness.
One nurse told the CFPB that servicing breakdowns left her with additional years of unnecessary payments. She enrolled in a program at work in which her employer paid extra toward her loans, putting them in what is known as “paid-ahead status.” But as a result her servicer stopped counting her monthly payments without warning.
In some instances, people said the servicing company provided an inaccurate count of all their qualified payments and gave them a hard time as they fought to have the error corrected. Borrowers must also submit a certification form verifying their income and family size to remain enrolled in the forgiveness program, but during that process some say they are placed into forbearance that prevents them from making qualifying payments.
Of the 8,500 complaints the bureau reviewed from March 2016 to February, 10 percent of them involved the loan forgiveness program.
FedLoan, an arm of Pennsylvania Higher Education Assistance, is the only servicer designated by the Education Department to manage loans held by borrowers pursuing Public Service Loan Forgiveness. The company declined to comment and referred all questions to the department, which did not immediately respond to requests for comment on the report.
The Education Department is being sued by borrowers who claim the agency inexplicably changed the eligibility requirement for employment that counts as public service after approving the work. In court documents, the department said there is no guarantee that forgiveness will be granted, a statement that has raised questions about the viability of the program as the first wave of forgiveness is set for October.
Projected costs for the program has given some policymakers pause. A Government Accountability Office report in 2015 said the typical borrower in the program owes about $70,000, with 1 in 4 on the hook for more than $100,000. If only a portion of the people going through the verification process receive forgiveness, the government would still be responsible for canceling billions of dollars in student loans. But some say the benefit is worth the expense.
“For borrowers that qualify, this program is intended to offer the peace of mind to direct their energy and expertise toward strengthening their communities,” Cordray said. “Many of these borrowers work for relatively modest wages in low-income areas where their help is desperately needed, as teachers, public defenders, social workers and nurses. Some have moved to underserved communities or turned down private-sector jobs that would have paid them more. All of them are serving our country in important ways.”