Sunday, January 24, 2021

The Public Service Loan Forgiveness Program is a bureaucratic nightmare, and litigation hasn't helped

In 2007, Congress enacted the Public Service Loan Forgiveness program to give student-loan debt relief to people who took on burdensome student loans and went to work in relatively low-paying public service jobs: first responders, medical professionals, school teachers, etc.

Under the terms of the PSLF program, individuals employed in qualified public service jobs who made 120 loan payments in an approved income-based repayment plan would have the balance of their debt forgiven. Furthermore, the forgiven debt would not be considered taxable income.

Pretty straightforward, right?  

To administer this program, the U.S. Department of Education appointed Fedloan Servicing to determine if PSLF applicants worked for qualified public service employers. Fedloan Servicing then became the loan servicer for those individuals. 

Still pretty straightforward.

Apparently, however, policymakers underestimated the cost of PSLF.  First of all, student borrowers who enrolled in the program had higher debt levels than other borrowers, which Congress probably did not anticipate. 

As Jason Delisle pointed out in a Brookings paper, PSLF actually allows many people to get graduate degrees for free.  College graduates who already have student debt can borrow more money for graduate school without increasing their monthly loan payments. 

Additionally, Congress unintentionally increased the cost of PSLF when it rolled out the GRAD Plus program, allowing individuals to borrow the full cost of attending graduate school, no matter how high that cost might be. Law school graduates, for example, borrow an average of $100,000 to get their JD degrees.  

Thus, PSLF and GRAD Plus acted together to create a perverse incentive for people to go to graduate school and borrow the maximum amount possible. 

At some point, during the last years of the Obama administration, the  Department of Education realized that the cost of the PSLF program would be enormous. As Delisle described the program, PSLF had become a "bonanza" for graduate students and needed to be scaled back.

The Department of Education, realizing belatedly that PSLF was a giant money pit, adopted regulations to limit the number of people who are eligible for PSLF relief. 

Thus, in the first year of processing PSLF relief applications, DOE approved only about 1 percent of the claims even though the vast majority of claimants had been certified by Fedloan Servicing as working in approved public service jobs.

The American Bar Association sued DOE on behalf of itself and four of its employees, claiming that DOE had applied its PSLF rules arbitrarily and capriciously in violation of the Administrative Procedure Act.

In a 2019 decision, Judge Timothy Kelly ruled in favor of three of the four ABA employees, finding that DOE had, in fact, acted arbitrarily and capriciously.

Congrees, dimly aware that something had gone wrong with the PSLF program, approved $350 million specifically to benefit PSLF applicants. But this legislation did not straighten out the mess that the PSLF program had become.

In July 2019, the American Federation of Teachers filed suit on behalf of five teachers who had been denied PSLF relief. AFT and the teachers charged DOE with acting arbitrarily and capriciously n violation of the Administrative Procedure Act and in violation of the teachers' constitutional right to due process. 

In June 2020, Judge Dabney Friedrich issued an opinion in the AFT lawsuit.  Judge Friedrich ruled that the individual teachers had not stated a valid claim for violation of the Administrative Procedure Act. But the judge ruled that the teachers had stated a claim for breach of due process, and he allowed that claim to go forward.

Did these two lawsuits straighten out the PSLF program? No, they did not.  In June 2020, about the time of Judge Friedrich's decision in the AFT case, the state of California sued DOE, also claiming that DeVos's bureaucracy had screwed up the PSLF program. That litigation is ongoing.

To summarize, PSLF is a fiasco. Congress's $350 million cash infusion did not fix it, DOE's regulations did not fix it, and litigation in the federal courts didn't straighten it out. 

Betsy DeVos's DOE wanted to scrap the program, and Delisle recommended that the program be shut down and "letting a standalone IBR program do what PSLF [was] meant to accomplish."

Politically, however, the PSLF program may be impossible to repair.  Almost four years after the first program participants were scheduled to get debt relief, few have received it. Thus, a program intended to assist Americans working in public service jobs has turned into a bureaucratic nightmare.


American Bar Association v. U.S. Department of Education, 370 F. Supp. 1 (D.D.C. 2019).

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

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

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

Richard Fossey & Tara Twomey, American Bar Association v. U.S. Department of Education: Federal Judge Rules That DOE Acted Capriciously in Denying Public Service Loan Forgiveness  to Three Public Service Lawyers, 366 Education Law Reporter 596 (August 8, 2019). 

Lauren Hirsch & Annie Nova. California sues Education Secretary DeVos, saying she has failed to implement student loan forgiveness program. CNBC News (June 3, 2020).

Weingarten v. DeVos, 468 F. Supp. 3d 322 (D.D.C 2020).

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

U.S. Government Accountability Office. Federal Student Loans: Education Could Do More to Help Ensure Borrowers Are Aware of Repayment and Forgiveness Options. GAO-15-663 (August 2016). 

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