In a stunning court filing this week, the U.S. Dept. of Education says that borrowers cannot rely on written determinations of eligibility for the Public Service Loan Forgiveness program.
Background: The Public Service Loan Forgiveness (PSLF) program allows for borrowers who make “qualifying payments” while working in “qualifying” public service employment to get any remaining loan balance on “qualifying” federal student loans forgiven after 120 payments – which adds up to 10 years, if the payments are made consecutively. Hundreds of thousands of student loan borrowers may be eligible for the program.
A “qualifying” employer is a domestic government entity, most 501(c)(3) nonprofit organizations, and some (but not all) other nonprofit organizations who engage in certain qualifying activities. How does the U.S. Dept. of Education determine whether a nonprofit employer qualifies for PSLF? Well, we don’t know – the program began on October 1, 2007 and is not retroactive to before that date, so no borrower has reached the 120-payment threshold to apply for forgiveness yet. Instead, the Department created an “Employment Certification Form” (ECF) administered through its loan servicer, FedLoan Servicing. Borrowers can submit the ECF form at any point during their 120-payment period and get a determination from the Department as to whether their employment qualifies, and the number of qualifying payments made thus far.
Employees for the American Bar Association (ABA) and other nonprofits are suing FedLoan Servicing and the Department of Education for rescinding prior determinations of eligibility in response to their ECF submissions. In short, these employees were issued written determinations that their employment qualified for PSLF. When they submitted a new ECF to get an update on their progress, the Department arbitrarily changed its mind, and said that their employment for the same organization now doesn’t qualify at all. That means years of progress towards PSLF was lost overnight.
In response to the lawsuit (which is ongoing and in its early stages), the Dept. of Education filed a reply in court this week stating its position that its written determinations in response to the ECF submissions are not “final” and thus can effectively be invalidated. This is deeply concerning, as it means that some untold number of nonprofit employees may continue working in their low-paying public service jobs believing – based on the written determination issued by the Dept. of Education – that it qualifies for PSLF, only to have the Dept. of Education change its mind later. This is particularly troubling in light of the fact that the first borrowers eligible for PSLF will be starting to apply in October of this year.
The court has not yet made a final ruling in this case. More to come. Stay tuned.