Public service lawyers denied loan forgiveness
Hundreds of thousands of people with piles of federal student loan debt had not been too concerned because they were counting on a federal government program that would forgive those loans if they worked at least 10 years in a public service job.
But what happens if the definition of “public service” seemed to change midway through that decade?
On Tuesday, the American Bar Association and four lawyers who thought they qualified filed suit against the Education Department trying to answer that question. The department had informed several of them that their jobs would make them eligible for loan forgiveness, but they later received letters saying that the ruling had changed.
All four, according to the legal brief, might have picked different jobs, borrowed less or entered different repayment plans had they known the rules would change.
The public service loan-forgiveness pro gram be gan in 2007, and is available, according to the explanation on the program’s website, to employees of governmental organizations, 501(c)(3) nonprofit groups and other groups who hold “qualifying” public service jobs.
People who are not sure whether a position qualifies can fill out a certification form that the Education Department reviews. It encourages borrowers to resubmit it each year, just to make sure they still qualify.
Once employed, borrowers must work full-time in a public service job or jobs and keep up their 120 monthly payments over 10 years. No loans have been forgiven yet, because 10 years have not passed since the first borrowers entered the program.
The suit, filed in U.S. District Court for the District of Columbia, says some borrowers received approval on their certification forms, then, years later, the entity servicing their loans reversed course, effectively ousting them from the program.
I t di d s o re t roac t ively, meaning that none of the pre v i ous l oan payments c o u n t e d t oward t h e 1 2 0 payments needed to qualify for forgiveness. So if the borrowers took a job that qualified, they would have to start again with accumulating the payments.
T h e f i n a n c i a l c o n s e - qu e n c e s a r e p o t e n t i a l l y steep, because some of the borrowers were in plans where t he monthly payment depended on their income. The payments were sometimes low enough, as a result of their low salaries, that their balances actually increased each month. An increasing balance would not matter if the entire amount due would vanish after a decade, though other forgiveness programs may waive the debt after 20 to 25 total years in repayment. The amount of forgiven debt at that point may count as taxable income, whereas public service loan forgiveness debt does not.
One of the four plaintiffs works for the American Bar Association and another one once did. The third plaintiff ’s dispute involves his work for the Vietnam Veterans of America, while the fourth works for the American Immigration Lawyers Association.
Ke l l y L e o n , a s s i s t a n t press secretary at the Education Department, said it was “committed to implementing the Public Service Loan Forgiveness program in accordance with the final regulations as prescribed by statute.” No one there would comment on why it was punishing borrowers by making its rulings retroactive.
Kate Voigt, the plaintiff who works for the immigration association (which is not a party to the suit), faulted the department for not being proactive. It had told her in an email that her job was eligible before it changed its policy two years later.
In December 2014, Voigt received a letter from Jeff Baker, an Education Department director, which said that the public education services that she provides did not make her eligible for forgiveness unless she had been educating students and families. “We regret any confusion that may have been caused by our earlier opinion,” the letter added.
“They had to have seen this coming, that the statute wasn’t straightforward and people would need some sort of guidance,” Voigt said. “The fact that they haven’t provided any is shocking to me.”
The forgiveness program has come under scrutiny for the potential cost to taxpayers of all the forgiven l oans. Voi g t ’s bal a nce i s about $240,000.
Isaac Bowers, director of law school engagement and advocacy for Equal Justice Works, said he knew of only a small number of denials like this one.
Still, he worried about how disputes like this or any effort to cap the amount of forgiven debt could affect others who are making career choices.
“I am sure it will make many borrowers feel less certain about their ultimate ability to earn public service loan forgiveness and raise doubts about the requirements of the program,” he said. “I think some borrowers will be less likely to commit to long-term public interest careers.”