Volunteers falling through the cracks of a student loan fix

When the Education Department announced fixes for its deeply dysfunctional Public Service Loan Forgiveness program in October, hundreds of thousands of long-suffering borrowers were suddenly given a chance at the kind of relief that the federal government had long promised them.

But a small, highly deserving group was left out, even though its volunteers passed through a particularly venerable government service program: the Peace Corps.

Many Peace Corps alumni say they — like others who are now getting help, including members of the armed forces — received bad advice that set back their attempts to wipe away their loans. But the federal government hasn’t seen fit to solve their particular problem.

“We’re supporting war in this country but not peace,” said Bonnie Rico, a former volunteer who said she had gotten bad information from both her loan servicer and Peace Corps staff.

The PSLF program is one that well-meaning legislators, regulators and bureaucrats bungled badly from the moment it became law in 2007. In short, PSLF is supposed to erase the remaining federal student loan debts — tax free — of people in a variety of nonprofit and government jobs after they make 120 on-time payments.

The original program, however, excluded people in certain kinds of loans or payment plans. And because of years of poor communication and customer service, many found out too late that they were in those excluded groups. The payments they made — for years, in many cases — did not count.

To make good on what the Education Department itself acknowledged was the program’s “largely unmet” promise, officials decided that many of these borrowers could now get credit for their payments. Officials also said they would count the months of service by members of the military who deferred payments while on active duty.

But the changes leave out Peace Corps alumni who similarly deferred payments, even though many did so on the advice of Peace Corps administrators or their student loan servicers.

“I didn’t really have a whole lot of guidance from parents or family members about managing my loans,” said Michelle Swanston, a first-generation college student who served two years in Americorps and more than two in the Peace Corps. “So I just listened to the advice of the organizations that I was going to.”

I asked the Education Department if there was a reason the Peace Corps volunteers didn’t receive the same consideration as members of the military. I didn’t get a clear answer. But an Education Department spokesman said the newly improved PSLF was still being discussed as the department engaged in further rule-making. A Peace Corps spokeswoman said the organization would continue to work with the department and hoped to have a “favorable outcome” for as many volunteers as possible.

Deferring payments made a certain kind of sense to the volunteers I spoke to. Peace Corps participants earn only a small stipend, so having no monthly bill to pay was appealing. But there was a way to do essentially the same thing and still get credit for their time in the program — often 27 months or more if they headed to a second country.

Volunteers could have entered an income-driven repayment program and would have had their payments reset to something they could afford. With their meager Peace Corps stipend, their payments likely would have dropped to zero.

So what sort of people managed to figure that out on their own after the 2007 legislation? I found only one: Arturo Alvarez, a lawyer who passed the California bar exam after working part time in a financial aid office for a few years during law school. He began his Peace Corps service in Mozambique after that, in 2016, and said the vast majority of the fellow workers he had encountered had been deferring their loans, which would not get them credit for each month that they were in the Peace Corps.

How did so many people make the wrong move? Poor information that lingered for years.

Peace Corps documents from 2010 — three years after the PSLF program became law — refer to deferment as a “reward” and “benefit” of volunteering for the service. Some volunteers from the first half of that decade say staff members even facilitated their deferral requests during orientation meetings. Crucially, according to everyone I interviewed, there was never any mention of PSLF at orientation during the forgiveness program’s early years.

It’s not clear when the Peace Corps started to inform volunteers about the program. By 2014, the Peace Corps had documents about it on its site, but many volunteers of that era said they had never seen them or had simply followed the cues about deferment that were still coming up during orientation.

The problem was compounded by one of the PSLF program’s endemic dysfunctions: unhelpful loan servicers. With just one exception among my interviewees, former volunteers of that period said their servicers’ advice had also been to defer payments. Clearly, the messaging about forgiveness and the Peace Corps was muddled from the start.