Loan Forgiveness Storm Clouds?

Loan Forgiveness Storm Clouds?

Over the past few days I have been at a conference in Boston. And while I was performing my administrative duties I had a number of people send me the New York Times article that appeared on March 30. In essence, the article exposed a potential problem for the Public Service Loan Forgiveness program, a subject I wrote two posts on this week (here and here). The potential problem is that when people submit their employment certification forms apparently the government is revoking their decision to qualify some organizations as eligible for public student loan forgiveness.

The Basic Process of Student Loan Forgiveness

I have written a longer post on the process of PSLF so here is a stripped down version. In order to be eligible you need to do 3 basic things:

  1. Be on an income based repayment plan sponsored by the government (REPAYE, PAYE, IBR or ICR)
  2. Certify your employment as an “eligible” employer. That eligibility is working for a government organization (federal, state, local, or tribal), working for a 501 (3)c organization, or other organizations that could be classified as “public service.” You fill out a form and submit it to the government.
  3. Make 120 “qualifying” payments regarding your student loans. Qualifying payments include payments that are on-time (within 15 days of the due date), all payments must be made while you are working for a qualified employer.

Once you have made your 120 payments then you can apply for forgiveness. When you do initially try to get into PSLF your loans will be transferred to “MyFedLoan” who keeps track of your payments and who also certifies your employment.

The Potential Storm Clouds of Loan Forgiveness

In the aforementioned New York Times article it was revealed MyFedLoan has certified some employers as eligible for PSLF, but then later rejected those employers. For example, Jamie Rudert was employed by Vietnam Veterans of America as a lawyer. Initially, he had his employment certified as eligible for PSLF, but later had it rescinded by the MyFedLoan servicer and no explanation was given. The Education Department has revealed that the loans sent out to people certifying their employment could not be relied upon  and that they could be rescinded at any time. As Mr. Rudert put it, if he would’ve known that his employment eligible he would have chosen to be employed elsewhere.

Thousands, if not millions, of people could suffer the same consequences. Mr. Rudert, as well as others, have filed a lawsuit regarding PSLF, but considering the first people to be eligible for forgiveness is only a few months away this poses a potentially major problem for those enrolled in the program.

My Thoughts

Personally, I think that Mr. Rudert has an excellent case and the courts will rule for him based upon my own research. In terms of my own situation, I don’t think I will have an issue because I clearly work for a government organization and there are no signs that PSLF certification will be revoked for employees of said groups.

Where it could be difficult is if Congress attempts to impose a restriction on certain professions with regard to PSLF. Under current regulations it doesn’t matter what job you do for a qualifying organization, it matters what kind of organization is in question.

So unless Congress changes the rules (and that would be very difficult and politically untenable) I am not that worried. Nor am I worried for my faculty colleagues.

I would be worried for some people who work in non-profit fields, however, and whether their employer does count as a “certifiable” organization.

That said, I think one should apply to get yourself into the program as quickly as you can. While there might be some initial headaches as they work this out. I think ultimately it is worth the paperwork to do so.

4 thoughts on “Loan Forgiveness Storm Clouds?

  1. I don’t know much about this topic, but wasn’t there something in the news saying that Trump would make it harder for student loans to be forgiven? Of course I could be wrong because again, I don’t really follow this issue.

    1. Hi Troy,
      Well, I don’t think so. Trump has argued his plan for forgiveness would be better because his would be at 15 years at 12.5% of your discretionary income. Now if that is across the board it is worse for those on PSLF, but better for those who are just enrolled in income-based repayment plans. It will be interesting to see what happens. The reason, I think, that the person in the NY Times article got in trouble was because his organization, while it maybe a non-profit is NOT a 501 (3)c organization. It is a 501 c (19) organization. Apparently, there are 29 subsections of the 501c code with the IRS. Now that might not mean a lot, but for classification for PSLF it is a big deal.

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