Department of Education slow rolls the Public Service Loan Forgiveness Program: Like a drunk weaving through traffic

For many years, the Department of Education has managed the federal student-loan program like a drunk creeping through heavy traffic. It has stumbled, reeled, dissembled, weaved and bobbed, but always avoided a head-on collision with reality.

But that time is over. Under Betsy DeVos's colossal mismanagement (and her predecessors), DOE has messed up the Public Service Loan Forgiveness Program (PSLF), thereby telegraphing to 44 million student-loan borrowers that Betsy Devos is either fiendishly devious or spectacularly incompetent.

The PSLF program is not complicated.  Under federal law, student-loan borrowers who work for a qualified employer (governmental agency or non-profit) and make 120 student-loan payments under an approved repayment plan are eligible to have remaining student-loan debt cancelled. (It's a little more complicated than that, but not much.)

Almost 1.2 million borrowers have applied to have their employment certified for PSLF eligibility. More than a quarter million applications were denied. That alone is a startling fact.

But it gets worse. About 28,000 people who are in the PSLF program (or at least believe they are in it) applied to have their student loans forgiven based on their representation that they had made the 120 required student-loan payments. How many people have obtained debt relief so far? Less than 100!

What are we to make of this gigantic snarl?

First, DOE has made the PSLF program needlessly complicated. After all, the government only needs to answer two questions to determine who is eligible for debt relief. Did the applicant work for an approved employer for 10 years? Did the applicant make 120 one-time payments on his or her student loans?

Second, the PSLF program was poorly designed, and DeVos's DOE has reached the startling realization that the program is astonishingly expensive.  In my opinion, DOE is dragging its feet about processing PSLF claims to postpone the reckoning day, when it will have to publicly admit that PSLF is going to cost taxpayers billions of dollars.

The Government Accountability Office (GAO) released a report almost two years ago that concluded DOE had underestimated the cost of various student-loan repayment options. I'm guessing DOE did not figure on the huge debt loads some PSLF applicants were accumulating from going to graduate school: MBA degrees, medical degrees, law degrees, etc.

According to GAO, the average amount of forgiven debt for the first 55 people who received student-loan forgiveness is almost $58,000. If  this average continues to hold, and all 890,000 people whose loans and employment were certified eventually get debt relief, the cost will be $50 billion! Meanwhile, DOE can expect PSLF requests for certification and debt relief to continue being filed into the indefinite future.

No wonder DOE is slow rolling the PSLF loan-forgiveness process.

 References

Stacy Cowley. 28,000 Public Servants Sought Student Loan Forgiveness. 96 Got It. New York Times, September 27, 2018.

Department of Education's New Report on Student-Loan Casualties: A Dr. Strangelove Moment

You remember that great scene from the movie Dr. Strangelove.  U.S. President Muffley (played by Peter Sellers) worries about the consequences of nuclear war with Russia. "You're talking about mass murder," President Muffley muses.

But General Turgidson (played by George C. Scott) is not concerned. "I'm not saying we wouldn't get our hair mussed. But I do say no more than ten to twenty million killed, tops."

Betsy DeVos is our modern day General Turgidson. The student loan program is shattering the lives of about 20 million Americans.  But in DeVos' mind, that's a small price to pay for a program that enriches her buddies in the for-profit college industry.

And so without further ado, I will summarize the Department of Education's most recent report on the student-loan debacle.

Income-Driven Repayment Plans. As DOE reports, more and more distressed student borrowers are being herded into income-driven repayment plans (IDRPs). As of June, 7.1 million people are enrolled in IDRPs, a 20 percent increase from just a year ago.

Student borrowers in IDRPs are America's new serfs. They pay a percentage of their income for 20 or 25 years to repay the student loans they took on to attend some raggedy-ass college that didn't prepare them for a job.

Of course, IDRP monthly payments are generally low. In fact, IDRP participants who live below the poverty line make monthly payments of zero. But virtually everyone in these plans--7.1 million suckers--will die without ever paying back their loans. In fact, for most of them, their loan balances are going up with each passing month due to unpaid accruing interest.

Borrower Defense to Repayment. According to DOE, 166,000 student borrowers filed so-called "borrower defense" claims. These claimants are seeking loan forgiveness on the grounds they were defrauded by the colleges they attended. Thousands of these claims were filed by people who attended just two for-profit institutions that went bankrupt: Corinthian Colleges and ITT Tech.

As of June 30, two thirds of these claims are still pending, and only 80 percent of the processed claims were approved.  Meanwhile, borrowers who have pending claims are still obligated to make their monthly loan payments.

Delinquency Rates. Delinquency rates are down slightly, DOE assures us, but almost a quarter million borrowers defaulted on their student loans during the third quarter of this year.  That's 2755 people going into default every day.  A high percentage of these defaulters attended for-profit colleges. But apparently those casualties are acceptable to Betsy DeVos.

Public Service Loan Forgiveness Program.

Hundreds of thousands of student debtors have taken jobs in the public sector in belief that their student loans would be forgiven after 10 years under the Public Service Loan Forgiveness Program (PSLF). It now seems they were deluded.

PSLF was enacted by Congress in October 2007, so the first people entitled to PSLF relief became eligible in October 2017. So far, 28,000 people have applied for PSLF relief, but only 300 claims have been approved and only 96 people have actually had their loans forgiven!

If Betsy DeVos and her gang of former for-profit-college hacks continue to refuse to implement PSLF in good faith, hundreds of thousands of college borrowers who relied on PSLF will suffer incalculable hardship.  For example, thousands of people have graduated from third- and fourth-tier law schools with six-figure debt, and they can't find law jobs in the private sector that pay enough to service their student-loan obligations. As Paul Campos pointed out in his book Don't Go to Law School (Unless), PSLF is these people's only viable option for paying off their law-school loans.

Conclusion: The Student Loan Program is in Fine Shape: "10 to 20 Million Casualties, Tops!"

DOE's own data shows us that the federal student loan program is a disaster: high default rates, income-driven repayment plans that don't allow people to pay off their loans,  borrower-defense rules that DOE administers incompetently, and a PSLF program that DOE refuses to implement in good faith. Meanwhile, the for-profit gang is getting rich.

Literally, there are at least 20 million casualties. Betsy DeVos must think 20 million casualties is acceptable, but I do not. Why don't our  politicians--Republicans and Democrats-- begin to behave like grownups and impeach Betsy DeVos, who is running DOE like a character in Dr. Strangelove.

10 to 20 million casualties--tops!

The White House wants to kill the Public Service Loan Forgiveness Program: But who can stop a tidal wave?

President Trump's White House proposes to eliminate the Public Service Loan Forgiveness Program (PSLF), which has triggered howls of protest. Jordan Weissmann, writing for Slate, described the proposal as a "sick joke" perpetuated by an out-of-touch President and an out-of-touch Secretary of Education:

A billionaire president and billionaire education secretary, neither of whom spent a single day of their lives in public service before stumbling their way into positions of immense power, are targeting a program that's basically meant to make life in underpaid government work a little more tenable. 

The Public Service Loan Forgiveness Program: A Very Generous Student Loan Program 

But in fact the issue of whether the PSLF program should be eliminated is a little more complicated than Weissmann described.  To get a clear understanding of what is at stake, people should read Jason Delisle's brief report on PSLF (only 5 pages of text) prepared for the Brookings Institution.

As Delisle explains,Congress initiated the PSLF program in 2007 along with the Income-Based Repayment Plan. (IBR). Student-loan borrowers who take public-service jobs are eligible to have their student loans forgiven after 10 years of loan payments. Furthermore, under IBR, student-loan borrowers' monthly payments were initially set at 15 percent of their gross adjusted income.

The PSLF program defines eligible public service broadly to include employment with a nonprofit agency or any federal, state, or local government. In fact, as Delisle points out, 25 percent of the American workforce qualify for PSLF under this definition of public service (p. 3).

As generous as the PSLF program was in 2007, the program became significantly more generous when the Obama administration introduced PAYE and REPAYE--two repayment plans that required borrowers to  make monthly loan payments totally only 10 percent of their adjusted gross income rather than 15 percent. As Delisle explains, "Had the [Obama] administration left the original IBR program in place, borrowers would have paid 50 percent more before having their remaining debt forgiven under PSLF" (p. 3).

PSLF: Distorted Incentives to Borrow Heavily for Graduate School

Significantly, the PSLF program set no cap on the amount students can borrow for their studies. Apparently, Congress did not anticipate that a high percentage of PSLF participants would be graduate students who would rack up six-figure student-loan debt to enroll in expensive graduate programs: law school, MBA programs, etc.

As Delisle explains, policy makers "who thought PSLF would be a small-scale program likely did not foresee that borrowers enrolled in PSLF would have some of the highest loan balances in the federal student loan program. In fact,  "[t]he median debt load of those enrolled in PSLF exceeds $60,000, and nearly 30 percent of PSLF enrollees borrowed over $100,000."

In essence, the PSLF program and the IBR program (including PAYE and REPAYE) act together to create a perverse incentive for graduate students to borrow excessive amounts of money because their monthly payments will not be affected. As Delisle explained:

Thanks to PSLF, [an already indebted graduate] student . . . who is faced with the choice of borrowing $10,000 to live frugally while enrolled in graduate school or $20,000 to support a more comfortable lifestyle is probably more inclined to choose the latter. (p. 6)

In short, as Delisle accurately summarizes, "[t]he high loan balances among enrollees helps to expose that PSLF is really a de facto loan forgiveness program for graduate students, who can borrow without limit" (p. 4, emphasis and italics supplied).

The Obama Administration Recognized that the PSLF Program Needed to Be Revised

To its credit, the Obama administration recognized that the PSLF program would soon be hemorrhaging money and needed to be revised to reduce the program's enormous costs. The administration proposed a cap of $57,000 on the amount that can be forgiven under PSLF and removing the cap on the amount of monthly payments. The Congressional Budge Office originally estimated these reforms would save the government about $400 million and then revised that estimate to $12 billion.

But the Obama reforms were never implemented, and the Trump administration inherited a program that is basically  providing free graduation education to most PSLF participants.

What will PSLF cost American taxpayers? No one knows

 How much will PSLF cost American taxpayers? No one knows. Approximately 432,000 people were officially certified to participate in PSLF according to government data Delisle reviewed in his 2016 paper. An article in the New York Times, published less than two months ago, reported a figure of 550,000 certified PSLF participants--25 percent higher than the number Delisle's paper reported.

But the number of PSLF participants could be considerably higher than any number reported so far because, as Delisle pointed out, people are not required to be get pre-certified as a condition of participating in the program. That's right, borrowers can apply to the PSLF program retroactively.

Conclusion: A Tidal Wave of  Forgiven Student Loan Debt is Bearing Down on the Trump Administration

The PSLF program is now ten years old, and the first group of PSLF borrowers will be eligible to have their loans forgiven by the end of this year. As Delisle explained so cogently in his Brookings essay, PSLF has turned out to be a bonanza for people to borrow unlimited amounts of money to go to graduate school. Because participants are only required to make token payments equal to 10 percent of their adjusted gross income for ten years, most PSLF participants are making payments so low that their payments are less than accruing interest.

Basically, the PSLF program is a tidal wave bearing down on the Trump administration.The White House has responded by defunding the program in its proposed budget, but shutting down PSLF may be politically impossible.  After all, as Weissmann pointed out, a lot of people went to graduate school based on the reasonable assumption that they were entitled to enroll in PSLF. It would be unfair to shut down the PSLF program precipitously, leaving thousands of student borrowers in the lurch.

In any event, who can stop a tidal wave?

The brutal reality is this: No matter what this presidential administration does about the PSLF program, it is going to cost taxpayers tens of billions of dollars.

References

Stacy Cowley. Student Loan Forgiveness Program Approval Letters May Be Invalid. New York Times, March 30, 2017. 

 Jason Delisle. The coming Public Service Loan Forgiveness bonanza. Brookings Institution Report, Vol 2(2), September 22, 2016.

Jordan Weissmann. Betsy DeVos Wants to Kill a Major Student Loan Forgiveness Program, Slate, May 17, 2017.