The student loan debacle, already messy and complicated, has just gotten messier. With current issues surrounding the supposed loan forgiveness for teachers, there are absolutely no signs of things improving in the immediate future.
Issues regarding the Public Service Loan Forgiveness program have come full circle with the lawsuit filed by the American Federation of Teachers last July. The complaint says “the union is asking the court to order the department to fix the Public Service Loan Forgiveness program so that it meets legal standards. It’s also asking the department to come up with an appeals process for people who believe they have been treated unfairly.”
The Public Service Loan Forgiveness program was created by Congress in 2007, with then-President George W. Bush signing the forgiveness program into law on September 27, effective the following Monday, October 1. The program was initially created by Congress with the idea of encouraging public service as the forgiveness program targeted only public servants, who also had to fulfill stringent requirements.
The program seemed simple enough in the beginning, so what happened for it to escalate into the kind of mess it is now?
A sizable debt
Before going through the nitty-gritty of the issue regarding the forgiveness program, let’s go over some figures first to show just how big of a problem student loan debt has become.
Right now, around 43 million adult Americans (roughly one-sixth of the population above 18 years of age), already owe more than $1.5 trillion in federal student loan debt. Aside from this, an estimated $119 billion of student loan debt has been taken from private loan providers not supported by the government. These figures, of course, are growing by the second – said to be at a rate of $2,726 per second – as more students continue to borrow, and interests accumulate.
So, you can only imagine just how big the total figure must be. However, unlike private-sector employees who had taken student loans, the loan forgiveness program for public servants serves as a beacon of hope for different types of qualified government workers hoping to take advantage of what the program is supposed to offer.
As observed in what is currently happening, though, the well-meaning program has become a huge disappointment for many of those for whom it was created.
Simple yet complicated
Let’s take an example: public school teachers.
In the Federal Student Aid website, the information appears to be simple enough:
Under the Teacher Loan Forgiveness Program, if you teach full-time for five complete and consecutive academic years in a low-income school or educational service agency, and you meet other qualifications, you may be eligible for forgiveness of up to $17,500 on your Direct Subsidized and Unsubsidized Loans and your Subsidized and Unsubsidized Federal Stafford Loans.
If you have a Direct Consolidation Loan or a Federal Consolidation Loan, you may be eligible for forgiveness of the outstanding portion of the consolidation loan that repaid an eligible Direct Subsidized Loan, Direct Unsubsidized Loan, Subsidized Federal Stafford Loan, or Unsubsidized Federal Stafford Loan.
What are the eligibility requirements?
- You must not have had an outstanding balance on Direct Loans or Federal Family Education Loan (FFEL) Program loans as of Oct. 1, 1998, or on the date that you obtained a Direct Loan or FFEL Program loan after Oct. 1, 1998.
- You must have been employed as a full-time, highly qualified teacher for five complete and consecutive academic years, and at least one of those years must have been after the 1997–98 academic year.
- You must have been employed at an elementary school, secondary school, or educational service agency that serves low-income students (a “low-income school or educational service agency”).
- The loan(s) for which you are seeking forgiveness must have been made before the end of your five academic years of qualifying teaching service.
Pretty straightforward? Not really.
Actually, if you go over the rest of the site, there are more details to be taken into consideration. There are certain conditions to be met, and supporting documents that need to be presented on top of the initial requirements.
There is really nothing wrong with this. In fact, it is all very helpful information presented in the form of FAQs. The problem, however, is that most people, including those in the public service, almost always depended solely on the support of the loan service providers and the information they shared.
Complications through the years
From the inception of the Public Service Loan Forgiveness program, several complications were brought to the fore through the years. New program after the program were introduced to address whatever was found to be deficient in the original forgiveness program as well as its ‘offspring.’
It’s not as easy as it might seem to keep track of this program.
Remember, President Bush signed the forgiveness program into law on Thursday, September 27, 2007. The measure, effective Monday, October 1, forgive loans of those who have rendered 10 years of public service; however, this covered only those services rendered after the law came into effect.
Before all of this happened, student loans already existed decades prior.
The “standard repayment plan” included the principal plus the interest divided into equal monthly installments made over the course of 10 years. This payment scheme proved to be difficult for people with financial problems, especially those who graduated during periods of economic crises. This is why beginning in the 1970s and 1980s, Congress felt compelled to come up with a series of alternatives.
First, loans could be put in “deferment.” This entails temporary permission to not make payments without being subjected to penalties or damages the borrower’s credit rating. There’s also “forbearance,” which is essentially the same as deferment. However, forbearance does not exempt the borrower from accruing interest during the period of non-payment.
- While both deferment and forbearance were somewhat helpful in the short term, the program could not address the long-term needs of some students. Congress’s response was to come up with a so-called “graduated” plan. In this payment scheme, instead of equal installments to be paid over the course of 10 years, payments would start small, then grow over time. Moreover, there was an “extended” plan where the repayment period exceeds 10 years – this could also be graduated.
- Again, the graduated scheme could not cover people who were flat broke, unemployed, or who simply could not afford to make any payments because of more pressing priorities such as addressing basic needs, children, rent, etc. This time, Congress came up with a new plan called “income-contingent repayment.” Monthly payments were computed based on the borrowers’ “discretionary income.” The payment pegged at 20 percent was taken from the difference between borrowers’ total income minus their basic living expenses defined as the federal poverty line. This scheme was a godsend initially as no income meant no payment. However, interests would continue to accumulate which would have made it nearly impossible to catch up with payments once there was actually any discretionary income to compute. Since Congress acknowledged this complication, they decided that people covered by the income-contingent repayment plan for 25 years would attain loan forgiveness for the remainder of their loan.
- Still, 25 years is a long time, and for those with very little income, 20 percent of one’s discretionary income is still a lot. So finally, the loan forgiveness loan we know today came into being at this stage, along with income-based repayment. It worked similarly as income-contingent repayment. This time, however, people had to pay only 15 percent of their discretionary income, with the remainder of the debt being forgiven after 20 years.
People working in the government, of course, got a superior deal through the Public Service Loan Forgiveness program that has been mentioned several times – they could gain forgiveness after a period of 10 years.
However, as you may already know, the definition of public service bears serious consideration. The conditions to be eligible for it ask for 120 monthly payments (10 years’ worth). These payments had to have been made, without fail, while employed full time as a public servant.
So, if you are in public service, and if at any point in time, you availed of deferment or forbearance, those months would not be considered part of the 120. The same can be said of availing of the other payment schemes such as the graduated and extended plans. This is not the end of the complications arising from the forgiveness plan – there are others, and they are slowly being brought to light.
And as pointed out earlier, those people who quickly got their requirements together to avail of loan forgiveness did not go to the Department of Education for information – the government agency responsible for subcontracting work to loan service providers meant to help borrowers.
Now, of course, everyone knows these front-liners or servicers failed to efficiently perform their task of clearly explaining the requirements and helping the applicants understand what could derail their application for loan forgiveness.
A breakdown in communication
Loan servicers, of course, cannot be held entirely accountable for the mess. Paid on a flat rate per borrower, this meant that the fussier the client, the less they made.
In short, the way information was sought and dispensed led to predictable results embodied in the June 2017 report of the Consumer Financial Protection Bureau – mistakes and rejections because of the way the loan servicers handled the applications. The complaints embodied in the report are also echoed in the American Federation of Teachers lawsuit.
- They told people that ineligible plans were eligible.
- They told people that payments that were ineligible were eligible.
- They took too long to consolidate loans into Direct Loans.
- They failed to tell people who were interested in the forgiveness program how to enroll.
- They failed to tell people that if they consolidated several existing Direct Loans into a single. new one, the 120-payment clock would reset to zero.
Again, these are not the only problems. Several forms have to be filled and documents have to be secured and submitted. Unsurprisingly, as of June 30 this year, only 102,051 applications have been processed with 8,677 more applications pending. Of these, 1,216 have already been approved while 100,835 have been rejected for the following reasons:
- Problems involving qualifying payments: 55 percent
- Problems with missing information: 24 percent
- No loan eligibility: 15 percent
- Problems with employment dates: 2 percent
- Employer non-eligibility: 2 percent
If you are looking to apply for the Public Service Loan Forgiveness program, you need to make sure everything below is covered:
- Complete the Employment Certification Form and submit it to the U.S. Department of Education either when you start working in public service or when you change employers, and this has to be done annually for you to stay on track.
- Enroll in an income-driven federal student loan repayment plan.
- If necessary, consolidate your federal student loans. Note that only direct student loans qualify for public service loan forgiveness.
- Refinance your private student loans.
Most of all, any or all of your questions pertaining to your eligibility for the program must be directed to the U.S. Department of Education.
What happens next?
The conclusion to this debacle is still uncertain and maybe a long time coming.
Public school teachers have managed to make a united stand against the Department of Education and point out the flaws in the implementation of the program. However, the issue of student loan debt continues to loom and grow, and it may continue to do so in the years to come.
Whatever happens, at this time, the amount of money that the federal government may have to waive off under the program continues to rise. With programs of increasing complexity (yes, the Congress came up with more schemes after 2007), loan servicer incompetence, and overwhelmingly confused, angry, and frustrated borrowers, one can only guess at what will happen next.
If you are one of the many hoping to avail yourself of the loan forgiveness for teachers program and require attorney-based assistance or information on the same, please do get in touch.