Loan forgiveness program falls short
The federal Public Service Loan Forgiveness program was supposed to provide a path out of student debt for nonprofit and government workers. For most who have applied, it’s been a dead end instead.
The program was established in 2007 to offer a chance for applicants to erase their balance if they worked in nonprofit or government agencies for 10 years and made their loan payments on time. Student borrowers didn’t become eligible to seek a discharge of their debt until 2017, and that’s when it became clear that the rate of success has been miniscule.
There’s a two-step process for getting loans forgiven. First, applicants must show their payments and their employers must certify their positions — firefighters, teachers, members of the military and others, for example. In 2018, according to the U.S. Department of Education, 1.17 million borrowers made the requests, and 890,516, or 76%, were certified. The next step, actual loan forgiveness, was much less forgiving. Of the 19,321 applications, just 55 were approved. Fiftyfive.
A Government Accountability Office report in September 2019 similarly said just 1% of applicants had their loan balances forgiven. And the Post-Gazette’s Tim Grant recently reported that things haven’t improved significantly in subsequent years.
The reasons for rejection are many, some legitimate and others ludicrous. Some didn’t have the correct loan type to begin with and others were on the wrong repayment plan, errors that could have been avoided with clearer instructions up front. Some had switched jobs, or their employer didn’t fill out the paperwork correctly.
Other borrowers got stuck in caveats and loopholes. One borrower, a nurse, reported accidentally making one payment that was short by 47 cents. That meant subsequent payments — for years — didn’t count as being in-full because of the 47- cent carry- forward. And she wasn’t told.
A director for Consumer Reports described the process as “an obstacle course full of tricks and traps.” The National Council of Nonprofits noted that a federal district court judge has said the Education Department changed two of its policies retroactively without informing borrowers. And in 2019, the New York attorney general sued processors FedLoan Servicing and the Pennsylvania Higher Education Assistance Agency, accusing them of “deceptive, unfair and abusive practices” that contributed to the large number of rejected applications. PHEAA since has decided not to renew its contract with the loan program.
The Education Department has shown signs it will try to improve the program. The department reached out for information from its 1.3 million borrowers in July, and more than 40,000 people have provided their experiences since then. Many examples sound like the kind of exploitation and deceptive practices employed by loan sharks.
Changes are needed, and fast. The student loan forgiveness program should be helping workers who choose to help others in their professions, not stringing them along with empty promises.