Readers with a particular interest in the student loan industry will remember the recent buzz about student loan forgiveness. It grabbed everyone’s attention and exposed shortcomings of the Department of Education’s ability to manage student loan forgiveness. The news from last week pertained to the Department of Education’s budgeting efficiency and capability. This week, complaints build around student loan forgiveness yet again; this time, the consistency and eligibility requirements of the program are under fire.
In addition to scrutiny and flak, the Department of Education is the recipient of a filed lawsuit from several affected lawyers (working for the American Bar Association, Vietnam Veterans Association, and the Immigration Lawyers Association – all public service positions) and the American Bar Association. Here is a quick synopsis of the story.
The lawyers involved with the case applied for and qualified for public service loan forgiveness (PSLF) either around 2007 or soon afterwards. Down the road, these lawyers received notification stating that their current jobs no longer qualified for student loan forgiveness. In short, their progress towards loan forgiveness was negated after choosing a career path that was clearly influenced by the prospect of loan forgiveness.
This is serious problem for several reasons. First, it shows that policy changes by the Department of Education can bar previously qualified candidates from receiving the benefits of a loan program. This sets a precedent for other programs offered by the Department of Education; for instance, subsidized Stafford loans could be converted to unsubsidized Stafford loans. This is just a simple example, so keep in mind that this is pure speculation.
Second, this change can set back previously qualified student loan borrowers significantly. Many public service loan forgiveness candidates enroll in income-driven repayment plans, a popular option for PSLF. Since this plan sets payments to a low percentage of income, many borrowers’ loan balances increase over the course of payments due to low monthly minimum payments. While not a problem under PSLF, a sudden change mentioned earlier negates that solution, and many borrowers could be stuck with a larger loan than before.
Third, it shows neglect, lack of consistency, and lack of proactivity from the Department of Education. Throughout the year, the Department greatly increased the standards and pressure on student loan servicers after implementing a centralized borrower complaint portal leading to heightened scrutiny. It makes little sense to see borrowers left in the lurch after such an emphasis on accountability.
The third point is especially alarming in light of the budgeting controversy with student loan forgiveness which was brought to light by the Government Accountability Office. It brings the Department’s ability to administer student loans into question. This is supported by the second point made earlier; for instance, these policy changes can leave borrowers with higher loan balances with public service income levels. These two observations make the Department of Education appear short sighted.
At any rate, this is a developing story, so more information is sure to be available in the future. One glimmer of hope may lie with recent New Jersey state legislative actions which just set a positive precedent for student loan forgiveness. With that in mind and for the sake of speculation, a ruling in the future could eliminate the possibility of PSLF disqualification after policy and eligibility changes take place.