Imagine if one notice from the federal government could cause you to question your major life decisions.
More than half a million people may have found themselves in that situation after a new legal filing by the Education Department.
Under a program known as Public Service Loan Forgiveness, some student loan borrowers were supposed to be able to have the balance of their student loans forgiven after ten years of both on-time payments and eligible work in the public sector. Meaning, a qualifying nonprofit, federal, local, state, or tribal government.
The program started in 2007, so the first debt was set to be forgiven this coming fall.
Last year a small group of borrowers learned that their eligibility for the program had revoked. These include four people, all attorneys, working for the American Bar Association, the American Immigration Lawyers Association, and Vietnam Veterans of America.
Nonprofits like these are not 501(c)3 charities or foundations, so it may be ambiguous whether they fall under the law's definition of "public service". But the four argued in a lawsuit last December, joined by the bar association itself, that their status shouldn't have been revoked, certainly not retroactively.
They had followed all the necessary steps to qualify for forgiveness. They'd enrolled in the correct repayment program and filled out an Employment Certification Form with FedLoan Servicing, which acts on behalf of the Education Department. That form certifies that borrowers work for a qualifying organization or a federal, state, tribal or city agency. It's suggested borrowers file an ECF every year.
On March 23, the department responded to the suit, saying, "FedLoan Servicing's response to the ECF does not reflect a final agency action on the borrower's qualifications for PSLF."
Meaning, in essence, all those years that borrowers submitted certification forms, the department wasn't making any promises about forgiveness.
Technically, the department is only responding to the narrow question about whether this small category of organizations is considered public service or not. However, "The retroactive aspect of this filing reasonably causes people to be nervous," says Robert Shireman, a senior fellow at the Century Foundation and a former Deputy Undersecretary of Education under Obama, where he was responsible for overseeing the program during its early years.
Nervous is right. More than half a million borrowers have signed up for the program. So we put the word out to find out how they were feeling. We heard "frightened," "anxious," "uncertainty," "regret," "betrayed."
Sunrise Ayers, who works for a nonprofit providing legal services to the elderly in Boise, Idaho, has about $80,000 in debt. Like many borrowers, she told us, "A lot of my life-planning decisions were made factoring the loan forgiveness into the equation." She says she turned down higher-paying jobs in the private sector, for example. "I would feel very betrayed, for both myself and my two sons, if this program is taken away," she says. "I would likely end up paying on my loans until I was in my 60s and would have no ability to save for retirement or to help pay for my children's college."
Brian Jones is a parole officer in Texas with about $30,000 in loans. "It's horrible," he writes, "because I was really depending on that to move on with my life and I don't know what I'm going to do."
Not only have many people made financial and career decisions based on the program, some told us they avoided getting legally married because of the change in tax status. Another respondent, who has almost $70,000 in loans and works as a community college counselor, says if it goes away, she and her husband, who has his own student loans, will reconsider having children.
The Education Department did not respond to a request for comment by deadline. A phone operator at FedLoan Servicing said that they did not have a communications department.
So, what should borrowers do?
If you're already signed up for Public Service Loan Forgiveness, for now, nothing, says Shireman. Keep making your payments and filing the paperwork. This lawsuit "should not be a problem" for anyone working in a 501(c)3 nonprofit, or for the government, he insists.
For those currently in school or contemplating their career options, do keep in mind that going forward, Congress may eliminate the program. President Trump has talked about streamlining the many student loan repayment options currently available, a proposal that has bipartisan support. When Sen. Patty Murray, a Democrat from Washington, asked Education Secretary Betsy DeVos directly during the confirmation process whether she would uphold Public Service Loan Forgiveness, DeVos she said she "look[ed] forward to discussing" it.
It's also possible that Congress keeps the program, but limits it. Under the Obama administration there was a proposal to cap forgiveness at $57,500. Current rules allow graduate students to borrow into the hundreds of thousands of dollars. Shireman says that inadvertently created a "moral hazard."