U.S. Teachers vs. The U.S. Government: The Battle over Student Loan Forgiveness
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Student loan forgiveness has become (finally!) a hot topic in our national conversation, but it looks like the complex system that services these loans to begin with is in very sad shape. (Yep, another broken cog in the bureaucracy wheel.)
In fact, the shape is so sad that it’s actually violating federal law and even the Constitution. It’s looking like before any progress can be made on student loan forgiveness, the system has to first be straightened out so it can fly right.
Hopefully, this fix can be hammered out with the help of our justice system. On July 11, 2019, the American Federation of Teachers filed a lawsuit in federal court asking the U.S. Department of Education to fix the Public Service Loan Forgiveness Program in order to meet legal standards.
A second request was included: have the department create an appeals process for those who feel they were treated unjustly.
We don’t have to tell you that student loan debt is a problem, but if you’re keeping score at home, know that student loans accounted for $1.49 trillion of the $14 trillion in American household debt as of 2019’s first quarter, according to the Federal Reserve Bank of New York .
What is Public Service Loan Forgiveness?
In response, the Public Service Loan Forgiveness (PSLF) program was created by Congress over a decade ago, in order to encourage public service. It goes like this: if you make payments for 10 years and you work in a qualifying job for the government or a nonprofit, you could have any remaining federal student loan debt forgiven.
Sweet deal, right? Or at least as sweet as real life will let it be. Since its inception, more than 1 million people have filed the official paperwork for the program. Who could blame them?
The punchline, though: the promise has been broken over and over again. Hence the lawsuit.
The Core Issues with the PSLF Program
Part of the problem lies in the fact that not all federal student loans are alike, and they offer a variety of repayment plans. In order for borrowers to qualify for this specific forgiveness plan, they need to have a Federal Direct Loan.
Some federal loan servicers appear to be neglecting to tell borrowers about this requirement, which means that borrowers could be thinking they will eventually be forgiven while paying back the “wrong” loan. This is especially a problem for people with federal loans taken out prior to 2010, the year all new federal loans were issued as Direct Loans. None of the payments made toward non-Direct Loans will count toward forgiveness, which will lead to crushing disappointment among borrowers.
The department itself calculated only 1% of the people who have supposedly made their decade of payments are getting approved for the loan forgiveness they’ve applied for.
“The Department of Education just cannot seem to get this right,” University of Utah law professor Christopher Peterson tells NPR . “They keep making mistakes and are not appropriately administering this program that Congress has created.”
Peterson is a former attorney for the Consumer Financial Protection Bureau. By his calculation, if you put all of the people rejected for forgiveness in one place, you would have “football stadiums full of nurses, firefighters, teachers, [and] law enforcement officers that are seeking to have their debts forgiven.”
Government reports studying the subject are finding the same issues: bad information and lack of communication. Earlier this year, a US Department of Education’s Office of Inspector General study found that the department’s student loan unit failed to supervise the companies it pays to manage federal student loans.
This, by the way, is a trillion-dollar portfolio. The study also reprimands the department’s office of Federal Student
Aid (FSA) for rarely penalizing companies that have not followed the rules.
The study observed nine loan servicing companies. All of them messed up here and there, but some more than others. For instance, according to one review of borrower phone calls from April 2017, servicers failed to comply with federal requirements in 4% of the calls, on average.
For example, the Pennsylvania Higher Assistance Agency (PHEAA), failed to give adequate or even accurate info in 10.6% of its borrower calls. Of a review of more than 850 calls, PHEAA reps failed to follow the rules in almost 9% of those contacted. That’s over five times the failure rate of the other servicers studied that month.
What it boils down to: the report blames the FSA’s “inconsistent oversight [which allows] these companies, known as loan servicers, to potentially hurt borrowers and pocket government dollars that should have been refunded because servicers weren’t meeting federal requirements.”
Breaking Down the Lawsuit
The Department of Education responded like this : “the Department continuously strives to provide strong oversight of all contractors, including federal student loan servicers…In addition to the steps outlined in our response to the OIG report, the Next Generation Financial Services Environment — which will modernize our legacy systems; centralize and streamline processes and procedures; and improve service to millions of students, parents, and borrowers — also will include rigorous performance standards and vendor accountability provisions that will support effective monitoring and oversight.”
However the teachers union lawsuit is alleging that the Department of Education “knows of — but completely disregards — repeated misrepresentations made by [student loan] servicers to borrowers who are attempting to qualify…resulting in unwarranted denials of loan forgiveness.”
The lawsuit points out another misstep: loan servicers are not able to accurately keep track of the number of qualifying payments people are making. This is happening despite the borrowers having the correct (qualifying) loan and payment plan. Even when they’re doing everything they’re supposed to do, and have the right type of loan and employment, still no dice.
“It’s hard to look at this as anything other than completely damning,” Seth Frotman, a consumer advocate and former government student loan watchdog, tells NPR. He’s currently the executive director of the Student Borrower Protection Center , and says this shows that “the Department of Education is asleep at the switch when it is responsible for over a trillion dollars of student loan debt.”
Don’t for a moment think this is all political. This study is from an independent watchdog , which reviewed FSA oversight records from January 2015 to September 2017. That covers both the Obama and Trump administrations. The review was a general overlook; it did not study any of these individual failures in order to identify connecting patterns of noncompliance.
Congress has since tried a band-aid, called Temporary Expanded Service Loan Forgiveness , which is supposed to help at least some of the borrowers. Yet the teachers union lawsuit claims that the Department of Education “has mismanaged [that program] as well.” Only 3.6% of applications for that program have been approved as of March 2019.
So what happens now? While the Department of Education cannot comment on the suit while it is still in litigation, they’ve advised those hoping to take advantage of the program on how to make extra sure they’ve fulfilled all the requirements.
What are Some Options Outside the PSLF?
If you do have a Direct Loan, Graduate PLUS Loan or even a private student loan, you could consider refinancing with SoFi. SoFi offers flexible terms and low fixed or variable rates and can refinance all qualifying educational loans—private and federal.
Don’t worry about wasting your money on application or origination fees — there aren’t any. No prepayment penalties, either. It’s all seamless: just one online application. You can prequalify in minutes, and customer support is available seven days a week to keep you sailing smooth.
But it is important to remember that when you refinance your student loans with a private lender like SoFi, you will lose access to federal benefits such income-driven repayment plans and forbearance programs.
Student Loan Refinancing
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.
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