By Ben Kaufman and Winston Berkman-Breen | November 1, 2021
Passed into law with bipartisan support in 2007, Public Service Loan Forgiveness was meant to offer student loan relief to public service workers in exchange for a decade of service in their communities or to the nation. But an unfortunate track record of bad industry practices and ambivalence by the Department of Education (ED) has led PSLF to have a 98 percent rejection rate—and to the expansion meant to fix PSLF having a 97 percent denial rate. Underlying these statistics, millions of teachers, nurses, and servicemembers who planned their lives around the promise of eventual loan forgiveness have been cheated out of their rights.
In October, in response to tireless advocacy, the Department of Education announced sweeping changes to the troubled Public Service Loan Forgiveness program that will allow hundreds of thousands of public service workers to cut through bureaucratic red tape and access the relief they have already earned. However, these fixes were delivered as a temporary waiver that will expire next year. Without additional structural changes to the program, future borrowers will continue to face unfair denials and broken promises—and historical mistakes will repeat.
This does not have to be the case. Right now, ED is undertaking a rulemaking process that is focused, in part, on re-writing the regulations that surround PSLF. ED can and must use this unique opportunity to fundamentally eliminate the unjust barriers and indefensible limitations that we already know exist within PSLF.
A new memorandum and associated proposed amendment to the existing regulations for PSLF that we are publishing today provides a clear roadmap ED can use to remove unnecessary constraints for PSLF qualification, hold borrowers blameless for well-documented industry abuses and failures in the implementation of PSLF, and change ED’s own policies and procedures for overseeing the program.
In particular, our memo shows how ED already has the power to make the following key fixes to PSLF:
- Restore the law’s initial vision of centering PSLF on borrowers’ public service—not on their employer’s tax status or willingness to misclassify workers to avoid paying benefits. Borrowers must work in a “public service job” to qualify for PSLF, but the law defines that phrase broadly. Nonetheless, ED chose in previous rulemakings to narrow the scope of PSLF so that the program would exclude borrowers who perform public service work while technically being paid by a for-profit company (such as home health aides legally employed by for-profit medical staffing companies). ED’s rules also exclude public service workers whose employers misclassify them as part-time employees—regardless of how many hours they work—so that management can avoid the cost of healthcare and other benefits. These restrictions on PSLF are not required anywhere in the statute Congress passed to create PSLF, and their formation by ED during the program’s implementation has had the most harmful effects on low-income borrowers and borrowers of color. ED must eliminate these unfair rules and restore PSLF to be the broad protection Congress envisioned when it created it—one focused centrally on whether borrowers are serving the public, not on tax-related tricks and traps.
- Close dubious loopholes that block borrowers’ payments from counting toward PSLF. The Higher Education Act requires only that PSLF applicants make 120 payments on a direct loan while employed in a public service job and enrolled in certain repayment plans for their student loans. It doesn’t say anything about the timing of those payments or whether they have to be complete. Plus, while the law does go into some specifics on the payment plans that borrowers have to be enrolled in to make progress toward PSLF, it is notably flexible in instances where borrowers were in the wrong plan but still paid at least as much each month as they would have if they were in the right one. Unfortunately, ED simply chose in past rulemakings to narrow the regulations around PSLF so that payments would only count if they were strictly on time and for the full amount owed, even despite the well-known history of industry recording borrowers’ payments as being for the wrong amount or at the wrong time. ED also decided on its own to exclude from PSLF payments made in the “alternative” payment plan, blocking as many as 1.4 million people from making progress toward forgiveness even though payments in the alternative plan often cost as much or more as payments in plans that qualify for PSLF. Importantly, the alternative plan is the default plan for borrowers who fail to recertify their income while enrolled in a qualifying income-driven repayment plan for PSLF, something that often happens due to servicer error that is entirely out of borrowers’ control. ED can and must use its current rulemaking process to reverse these harmful, unnecessary hurdles.
- Affirm that borrowers won’t be penalized for the long and ongoing history of industry abuses related to PSLF. A key driver of the near-universal rejections that borrowers have faced when pursuing PSLF is the student loan industry’s long history of lying to borrowers about the qualifications for the program, driving public service workers away from qualifying payment plans, and otherwise failing to implement the PSLF in good faith—often to boost these companies’ bottom line. These problems appear to be ongoing, as just this past summer the Consumer Financial Protection Bureau reported that it had caught companies that service certain older loans that are not eligible for PSLF lying to public service workers about the steps they could take to become eligible for the program. Accordingly, while the waiver that ED announced in October does temporarily help borrowers make up for time toward PSLF lost to industry chicanery, the Department must ensure that public service workers remain permanently protected. ED must use its existing broad authorities to hold borrowers harmless for servicer errors or misconduct, create long-term pathways to forgiveness for borrowers who spent time in repayment on the wrong loan or in the wrong repayment plan due to industry misrepresentations, and count time that borrowers spent in deferment or forbearance due to bad servicer advice toward PSLF.
- Fix persistent administrative problems and procedural barriers that stand between borrowers and loan forgiveness. The steps that borrowers have to take to secure PSLF—even when they fully meet the qualifications for loan forgiveness—are riddled with excessive wait times, black-hole bureaucracies, and a general lack of transparency. From problems with the processing of the forms borrowers rely on to certify their employment for the purposes of PSLF to the lack of a straightforward framework for appealing PSLF denials, borrowers frequently find that the path to forgiveness is a maze of administrative complexity. Worse, processing delays often lead borrowers to lose out on several months of progress toward PSLF, including through time spent in forbearance while borrowers wait at no fault of their own for their servicer to confirm re-enrollment in their payment plan. ED can fix this. The Department must comprehensively streamline the processes surrounding PSLF, hold servicers accountable for timely administrative action, and ensure that borrowers are credited the full amount of payments possible under the law when process delays keep them from forgiveness.
ED has responded to a strong and coordinated call from borrowers and advocates to take key steps to make up for the past errors and predatory practices that broke the promise of PSLF, but these measures are temporary and do not address all of the program’s shortcomings. It’s time to finish the job of fixing PSLF once and for all.
Ben Kaufman is the Head of Investigations and a Senior Policy Advisor at the Student Borrower Protection Center. He joined SBPC from the Consumer Financial Protection Bureau where he worked as a Director’s Financial Analyst on issues related to student lending.
Winston Berkman-Breen is the Deputy Director of Advocacy & Policy Counsel at the Student Borrower Protection Center. Prior to joining the SBPC, Winston was the Director of Consumer Advocacy and Student Loan Advocate at the New York State Department of Financial Services.