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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, April 3, 2017

NY Times:  Student Loan Forgiveness Program Approval Letters May Be Invalid

Department of Education LogoNew York Times, Student Loan Forgiveness Program Approval Letters May Be Invalid, Education Dept. Says:

More than 550,000 people have signed up for a federal program that promises to repay their remaining student loans after they work 10 years in a public service job.

But now, some of those workers are left to wonder if the government will hold up its end of the bargain — or leave them stuck with thousands of dollars in debt that they thought would be eliminated.

In a legal filing submitted last week, the Education Department suggested that borrowers could not rely on the program’s administrator to say accurately whether they qualify for debt forgiveness. The thousands of approval letters that have been sent by the administrator, FedLoan Servicing, are not binding and can be rescinded at any time, the agency said.

The filing adds to questions and concerns about the program just as the first potential beneficiaries reach the end of their 10-year commitment — and the clocks start ticking on the remainder of their debts. ...

The plaintiffs held jobs that they initially were told qualified them for debt forgiveness, only to later have that decision reversed — with no evident way to appeal, they say. The suit seeks to have their eligibility for the forgiveness program restored.

“It’s been really perplexing,” said Jamie Rudert, one of the plaintiffs. “I’ve never gotten a straight answer or an explanation from FedLoan about what happened, and the Department of Education isn’t willing to provide any information.” ...

Mr. Rudert submitted the certification form in 2012 and received a letter from FedLoan affirming that his work as a lawyer at Vietnam Veterans of America, a nonprofit aid group, qualified him for the forgiveness program. But in 2016, after submitting his latest annual recertification note to FedLoan, he got a denial note. The decision was retroactive, he was told. None of his previous work for the group would be considered valid for the loan forgiveness program.

What changed? Mr. Rudert said he did not know. After filing a complaint with the Consumer Financial Protection Bureau, he received a reply from FedLoan saying that his application “had initially been approved in error.” He has not been told what the error was, and has not found any way to appeal the decision.

Mr. Rudert and the American Bar Association filed their suit in December, alleging that the Education Department acted “arbitrarily and capriciously” in making its decisions about which employers qualified. ...

The idea that approvals can be reversed at any time, with no explanation, is chilling for borrowers. Mr. Rudert, who graduated from law school owing nearly $135,000 on student loans, said he would have picked a different employer if he had known that his work at Vietnam Veterans of America would not qualify. ...

Linda Klein, president of the American Bar Association, called the department’s response “illogical, untenable and bewildering.” An unreliable certification system “exposes those undertaking public service work — exactly what Congress intended them to do — to crippling financial risk,” she said.

Forbes, What To Do If Student Loan Forgiveness Letters May Be Invalid:

So, you now work in public service - or plan to work in public service. What does this all mean and what should you do? Here is what you need to know:

  1. Understand How Public Service Loan Forgiveness Works ...
  2. This Is An Individual Lawsuit With Specific Circumstances ...
  3. Choose Your Employer And Type of Employment Carefully ...
  4. Public Service Loan Forgiveness Should Not Be Your Primary Reason For Entering Public Service ...
  5. The Trump Administration May Change Student Loan Repayment ...

(Hat Tip: Mike Talbert.)

Legal Education | Permalink


It sounds like Betsy Devos wants to tie up the Department of Education with litigation it's likely to lose.

Posted by: Detrimental reliance | Apr 3, 2017 4:15:50 AM

Short version: someone finally did the math, and figured out how much money they'd be giving away.

Posted by: Chad Irby | Apr 3, 2017 5:40:51 AM

It's almost as if one can't rely on the government's promise of free money in the distant future.

Posted by: AMTbuff | Apr 3, 2017 6:31:04 AM

What's chilling to me is that if you work for the government or a non-profit then you don't have to pay the debts you willingly signed on for, but if you work in the private sector you do. Why should government employees be exempt from the agreements they signed?

Posted by: Ben | Apr 3, 2017 6:36:30 AM

Whatever fedloan responsibility here for giving false hope, it's crazy that these people think non 501c3s, most of which that engage in overt political advocacy (see the aba) think they are in public service. One, they arent, and two any responsible reading of the statue and associated regs makes clear they should have never been pre-qualified to begin with.

Posted by: Bobby | Apr 3, 2017 7:04:59 AM

Sounds like Detrimental Reliance clearly didn't read the article, which makes it clear that this news broke last year, when we were still blissfully in the pre-Trump era.

Posted by: Unemployed Northeastern | Apr 3, 2017 10:11:56 AM


1) Public Service Loan Forgiveness has been around since Dubya; it was implemented primarily so non-wealthy people with graduate degrees could contribute in the public sphere. Or perhaps you would prefer all of your public servants to be financially desperate?

2) There are, by my count, four income-based repayment plans for private sector workers that can result in loan forgiveness. ICR, IBR, PAYE, and REPAYE. And Trump mentioned during the campaign that he wants to introduce one of his one.

Posted by: Unemployed Northeastern | Apr 3, 2017 10:15:32 AM

The reason the public sector employees get loan forgiveness earlier is because the government and non-profits tend to pay people much less than they could have made in the private sector, especially highly educated workers (i.e., those with education debts).

The government tends to overpay people who are relatively uneducated and unskilled compared to the private sector.

The debt forgiveness is a backdoor pay increase for the first 10 years meant to induce more talented people to take public sector jobs, instead of folks who couldn't find anything better or the handful of people who have an unusually well developed commitment to public service or are independently wealthy and unconcerned with money.

People joke about how dumb and lazy people who work for the government are, but there's a reason there's a kernel of truth. You get what you pay for.

The Federal Reserve gets great economists. The local government of Nowheresville USA, not so much.

Posted by: Loan forgiveness | Apr 3, 2017 10:28:18 AM

@Ben, actually it says right in the promissory note that every student borrower signed that they would be able to utilize PSLF. It is literally part of the agreement they signed.

Posted by: GU | Apr 3, 2017 10:51:44 AM

What does that mean? They work for nonprofits engaged in political advocacy. Not 501c3s or federal, state or county government. They don't qualify. Read the reg. This entire controversy is insane, these people never qualified to begin with.

And no the promissory not only says you may apply after 120 payments. It promises no forgiveness, no pre-qualification for forgiveness, etc.

Posted by: Bobby | Apr 4, 2017 6:21:19 AM