WASHINGTON — When Congress created a student loan forgiveness program in 2007, lawmakers wanted to draw people to vital but relatively low-paid careers with a promise: after a decade, if borrowers faithfully paid their debts and pursued their work, they would have the remainder of their student loans written off.
Since then, tens of thousands of graduates were led to believe by their student loan servicers that they would qualify for relief at the end of a decade, only to be shocked when their applications were rejected.
The blame can be spread broadly — to loan servicers who at best failed to inform borrowers of what was needed to qualify, to the single company in charge of the program that has been repeatedly cited for shoddy service, mismanagement and poor record keeping, to lawmakers who wrote in a baffling list of requirements, and to the Education Department, which has failed to step in and correct the problem.
Those affected are people like Kelly Finlaw, who, for a decade, dreamed of small splurges: a new shower head that did not spray everywhere but her bathtub, coffee from a cafe — maybe even an apartment she would own, rather than rent, near the school where she worked in New York. All of that would be possible, she had thought, once the federal government forgave her student loans.
She called that “the light at the end of the tunnel.” Then, in October 2017, she opened the long-anticipated letter and learned instead that the Education Department said her loans did not qualify. “The light at the end of the tunnel went dark,” Ms. Finlaw said.
Fewer than 1 percent of those who have applied for relief under the Public Service Loan Forgiveness program have been deemed eligible. Lawsuits are proliferating, along with dashed hopes.
“We didn’t create a puzzle or a contest,” Representative Robert C. Scott, Democrat of Virginia and the chairman of the House Education Committee, said in exasperation at a recent hearing on the program. “The odds of somebody getting through this process — they’d be better off buying lottery tickets.”
More than 80,000 professionals like Ms. Finlaw have been denied the promised relief, through bureaucratic snafus, confusion over complex rules or just poor management. The first deadline came and went in 2017, and fewer than 1 percent of the 28,000 applicants received anything. Congress rushed to create an emergency “fix” fund last year — and it too had a dismal 99 percent rejection rate.
The Education Department maintains that it is carrying out the law as passed — and it was messy and filled with complicated requirements that borrowers and lenders have struggled to understand. The vast majority of denials happened because people did not enroll in a loan or repayment plan that qualified, even if their chosen professions did, according to government auditors. Most were not told of the error until the rejection notice’s arrival.
Democrats and other critics say the Education Department has made no effort to improve what is within its control. The single loan servicer hired by the agency to manage the program has gone unpunished, despite years of criticism, according to lawsuits and government audits. That servicer, the Pennsylvania Higher Education Assistance Agency, has been paid $1.3 billion over the past decade.
“In government, you’re actually supposed to solve problems,” said Randi Weingarten, the president of the American Federation of Teachers, which has sued the Education Department. “And when you see that less than 1 percent approval rating, that should be a four-alarm fire.” (Last week, 21 attorneys general — including one Republican, Lawrence Wasden of Idaho — filed a brief supporting the union’s position.)
The warning signs were evident years ago, government records show. The Pennsylvania Higher Education Assistance Agency, which does business as FedLoan, struggled to accurately track borrowers’ qualifying monthly payments, according to quarterly reviews done in 2015 and 2016 by the Education Department. In each of three successive quarters, at least 23 percent of the accounts the agency examined had mistakes.
Audits in 2017 found that the loan servicer still had problems accurately counting loan payments and had mistakenly told some borrowers they were on track to receive forgiveness. But the department did little to correct the issues, according to a report released last month by House Democrats.
Internal Education Department records, obtained by a borrower through a public records request and provided to The New York Times, reveal confusion at both the Education Department and the loan servicer about whether some employers qualified for the program. When mistakes were made, borrowers were left on the hook for debts they had believed would be forgiven.
In October 2007, for example, the loan servicer told an employee of a New York health insurer that the worker’s job qualified as public service work. Nearly a decade later, in May 2017, the Education Department reversed that decision, email records show. (A group of borrowers affected by a similar reversal sued the Education Department. A federal judge ruled this year in their favor.)
The department pointed to a number of efforts underway to improve the problem. The “Next Gen” project — a planned technology overhaul of the agency’s loan servicing system — will, it says, allow for better oversight. This month, Betsy DeVos, the education secretary, personally summoned executives from loan servicers for the first of quarterly meetings about performance standards.
“When servicers fail, we fail, and our customers deserve more,” said a department spokeswoman, Angela Morabito.
Department officials told Congress that they also launched an aggressive information and outreach campaign to better communicate the program’s requirements to borrowers.
In April, the Education Department sent the Pennsylvania Higher Education Assistance Agency a written warning that said its call center performance was “wholly unacceptable.”
Keith New, a spokesman for the loan servicer, said it “believes in” the Public Service Loan Forgiveness program and “works tirelessly to help borrowers navigate the program’s complexities.” He added that the Pennsylvania Higher Education Assistance Agency “services the program in accordance with program rules and federal law.”
Under those rules, some borrowers expect they will die with their debt.
A native of Akron, Ohio, Ms. Finlaw, 36, attended a small, private college in Indiana and then graduate school in Philadelphia, where she earned a master’s degree in urban studies. Raised by a mother who had to work multiple jobs to make ends meet, Ms. Finlaw had no choice but to take out loans to pay for school. She was the first in her family to graduate from college.
She religiously made her payments, provided the paperwork to show she remained a teacher and was repeatedly told that she was on track. When her loan servicer, Nelnet, said in spring 2017 that she was eligible to apply for the loan forgiveness program, Ms. Finlaw did so immediately.
At that point, her loan was transferred to the Pennsylvania Higher Education Assistance Agency, which took charge of the forgiveness process. Weeks later, she was turned down. The Education Department said that some of Ms. Finlaw’s undergraduate loans were the wrong kind — the first time she had been told that, she said.
Nelnet then said she could reconsolidate her debt so all of her loans would qualify. She did so, and has now started the 10-year clock over. A spokesman for Nelnet referred inquiries to the Education Department and did not respond to questions about Ms. Finlaw’s situation.
Ms. Finlaw prides herself on living frugally, with just enough left over from her paychecks for bills and groceries. She still considers her nearly $90,000 debt — and 7 percent interest rate — a small price for her dream job.
“I would do it again if it meant that at 3:05 p.m. every Friday, I can stand in my classroom and sweep my floor, with a great week behind me and another one ahead,” Ms. Finlaw said. “I am not the one that asked for this program. I didn’t dream it up. Someone promised it. All I did was believe it was real.”
When Congress created the loan forgiveness program in 2007, lawmakers kept down its cost by limiting eligibility: Only borrowers with so-called direct loans, issued by the Education Department, would qualify. Far more borrowers had bank loans subsidized by the Federal Family Education Loan program.
In 2010, Congress eliminated that program and made all new federal student loans direct from the government. Suddenly, far more borrowers than Congress had initially intended would be eligible to have their loans forgiven.
But many borrowers with bank loans did not realize that they were ineligible. Their loan servicers did not tell them they needed to consolidate their debt into a new direct loan to qualify.
Congress also mandated that borrowers pay back their loans in a specific way, using a payment program tied to their income. Those on other payment plans were ineligible — and, again, many said they were unaware of the rule.
Under pressure to salvage the effort last year, Congress created the Temporary Expanded Public Service Loan Forgiveness program, a $350 million fund (later doubled) to ensure that borrowers initially deemed ineligible could have their applications reconsidered.
The new program expanded the number of repayment plans eligible, but it was still only available to direct loan borrowers — again cutting out tens of thousands of frustrated applicants. And Congress imposed another hard-to-clear hurdle: Only those who had recently made loan payments for at least as much as they would have owed on an income-linked plan would be eligible.
The Education Department added its own set of bureaucratic tripwires, according to a Government Accountability Office report in September. The department required borrowers to initiate a request via email and to submit a separate application for the original program (even if the applicant knew it would be rejected) before it would consider an application for the temporary program.
So far, 656 people have had their loans forgiven through the temporary program, for a total of $27 million — less than 4 percent of the money Congress allocated.
Ashley Waddell of Fort Collins, Colo., who has spent her career working for nonprofit organizations, was hopeful when she got her rejection letter in June from the original loan forgiveness program because it encouraged her to apply for reconsideration. She had spent years in the wrong repayment plan. Last month, she received a letter from the Education Department telling her, again, that she was not eligible, and again because she was on the wrong repayment plan.
“It almost seems, like by design, they’ve engineered a way to claim that they have a plan in place without actually offering anybody any relief,” Ms. Waddell said.
Erica L. Green reported from Washington, and Stacy Cowley from New York. Anemona Hartocollis contributed reporting from New York.
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