Is the Public Service Loan Forgiveness Program Screwed?
In 2007, the federal government enacted the Public Service Loan Forgiveness (PSLF) program to help student loan borrowers working in the public sector. Under the PSLF program, borrowers who work for a qualifying employer – like a non-profit or a government organization – can have their student loans forgiven after a decade of service and 120 monthly loan payments.
For cash-strapped public sector workers, the Public Service Loan Forgiveness program was a godsend. Work 10 years, have your student loans forgiven. The best part? The forgiven loans won’t even be taxed (unlike loan forgiveness through an income-driven plan).
The PSLF program started in 2007, so the first batch of student loan borrowers enrolled in the program should have their loans forgiven later this year.
According to the Department of Education, the program has received nearly one million applications since its inception. And of those applications, two-thirds were approved for eligibility. Typically, FedLoan Servicing – the loan servicer that manages loans under the PSLF program – sends a letter to borrowers to notify them whether or not their employment qualifies for the program.
If your employment does qualify, you’re set, right? Unfortunately, that’s not the case for all student loan borrowers.
Why Your Approval Letter Could be Invalid
If you’re participating in the Public Service Loan Forgiveness program, you submit an Employment Certification Form (ECF) to confirm your eligibility. But recent reports have proven that approval letters could be invalid.
According to recent legal filings by the American Bar Association, some public service employees received disqualification letters – after they had already received approval letters.
The ABA Journal talks about one such case that resulted in a lawsuit. To quote:
“Name plaintiff Geoffrey Burkhart, who at the relevant time worked for the ABA’s Standing Committee on Legal Aid and Indigent Defendants, alleged in the lawsuit that he’d received confirmation in 2014 that his ECF was accepted. Before taking the job, in fact, he confirmed eligibility with both the ABA and the loan servicer, FedLoan Servicing. FedLoan Servicing later sent him a letter accepting his ECF, which was attached to the lawsuit as an exhibit.”
After two years though, Burkhart received another letter from FedLoan Servicing. This one stated that his employment didn’t qualify for the PSLF program. In other words, his payments over the past few years will not count toward any student loan forgiveness.
These actions are a big blow to student loan borrowers who commit to a life of service. Many of these borrowers believe that they’ll receive loan forgiveness under the PSLF program. But these actions call all that into question. It’s confusing and – most of all – frustrating.
Even more concerning? The Department of Education says that approval letters are not binding.
As such, the government can retroactively deny loan forgiveness.
What Can You Do?
One of the issues with PSLF is that nobody has firsthand experience with getting student loans forgiven under the program yet. After all, the first batch of student loan borrowers under this program can’t apply for forgiveness until October 2017.
The government encourages borrowers to submit an Employment Certification Form each year to confirm their eligibility. But clearly even that isn’t a foolproof method.
As such, the only way to truly know if you can get your loans forgiven is to make 120 monthly payments while working in a qualified field, and then to apply for student loan forgiveness. If the Department of Education approves you, the government will forgive your loans.
But with this recent news, the PSLF program is looking more like a gamble than a guarantee. Working for low pay in the public sector for 10 years is often an investment. And for many, that investment is only worthwhile because of the prospect of loan forgiveness. If you get denied for forgiveness, then what?
As a student loan borrower, it’s important to stay on top of your repayment. And, of course, to weigh the pros and cons of each repayment program, including student loan forgiveness. Unfortunately, there isn’t a lot of data yet around student loan forgiveness, and you’re playing by the Department of Education’s rules.
That said, the PSLF program may still be a lifesaver for many. But those on the program need to understand that it isn’t guaranteed.