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Monday, June 19, 2017

The Need For Better Eligibility Regulations In The Public Service Loan Forgiveness Program

Federal Student AidGregory Crespi (SMU), The Public Service Loan Forgiveness Program: The Need for Better Eligibility Regulations:

People will start seeking tax-exempt debt forgiveness under the Public Service Loan Forgiveness (“PSLF”) program in October of 2017 after satisfying the requirements of 10 years of post-October 1, 2007 employment in a “public service job.” I estimate that eventually 200,000 people a year or more will obtain debt forgiveness under this program, at a total cost to the Treasury of $12 billion/year or more. Estimates are that up to one-quarter of all employment will qualify as a public service job.

For such a large and costly program the precise eligibility criteria are crucial. The statutory definition of a public service job is very broad and specifically lists numerous categories of public service, and is in some ways ambiguous. The Department of Education (“DOE”) in 2008 issued regulations regarding PSLF program eligibility, but those regulations have serious deficiencies. First of all, the regulations improperly define a public service job in a manner that is inconsistent with the statute by imposing a “public service organization” employer requirement that is not in the statute. This requirement works to disqualify some statutorily-listed public service employment from debt forgiveness eligibility, in particular public services employment provided on behalf of for-profit businesses or certain non-profit employers, and also improperly allows eligibility for debt forgiveness for some employees of private non-profit employers who are not employed to provide a qualifying public service. Second, the regulations fail to clarify vague statutory language regarding what constitutes “public” service, most importantly regarding the scope of “public interest law services.”

The DOE has also recently rescinded several previously granted certifications of employment as qualifying on the basis of a newly imposed restrictive “primary purpose of the employer” requirement that is not in the governing statute nor in the DOE regulations, actions that have been challenged in court by the American Bar Association. Even if this restriction is upheld, which appears unlikely, there is a strong argument that the DOE should be estopped from rescinding prior certifications.

In order to avoid unnecessary litigation once the expected large number of applications for debt forgiveness begin to be filed after October of 2017, I recommend that the DOE first seek Congressional action to clarify the contours of the PSLF program’s eligibility statute, and while awaiting such action it should rescind its public service organization eligibility requirement that is inconsistent with the statute, clarify that there is no primary purpose of the employer requirement, and provide much more detailed guidance regarding the contours of the various statutorily-specified forms of qualifying public service, especially public interest law service. If PSLF program eligibility is to be either narrowed or expanded this should be done through appropriate legislation, and not through unauthorized and somewhat covert DOE actions.

See also Gregory Crespi (SMU), Will the Public Service Loan Forgiveness Program Ever Forgive Any Loans?

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...Or Trump and DeVos both want PSLF killed because reasons and the GOP-dominated Congress does also, so probably the whole issue will be a moot point anyhow.

Posted by: Unemployed Northeastern | Jun 19, 2017 10:07:41 AM

Some readers of the paper have commented that the DOE regs, while perhaps going outside of the statutory contours, actually set forth more sensible eligibility criteria that does the statute. In an age of Congressional gridlock maybe we should encourage rather than criticize (as I do in my article) such agency free-lancing. Maybe the ideal of legislative supremacy as compared to agency action is obsolete? But if so how do we handle agency action that reflect Presidential appointee Scott Pruitt/ Betsy DeVos-style directives rather than honest expert judgments? Comments welcome.

Posted by: Greg Crespi | Jun 19, 2017 2:49:27 PM

I am not quite sure how Scott Pruitt/Betsy DeVos influenced the Department of Education to issue directives and contact borrowers with changes in interpretations of the Regulations in December 2014, October, 2016, or even when the ABA filed suit on December 20, 2016. I thought Arne Duncan (2014) /John King(2016) were Secretaries of Education at that time. You know, I even seem to remember White House budget proposals in 2015, 2016, and 2017 that would limit PSLF to $57,500 for grad/prof/law students. I think the House Budget Committee only caught on last year. Was it the Budget Control Act of 2011 that terminated the subsidized loans for grad/prof? When did RePAYE change the terms of cancellation to 25 years for grad/prof/law? Must be confused about timing...

Posted by: Stephen | Jun 20, 2017 5:48:33 AM


Great paper. The answer to your question, “how do we handle agency action that reflect Presidential appointee Scott Pruitt / Betsy DeVos-style directives,” is that we win elections. A narcissistic con artist has seized the White House. I did not expect much from lackeys like DeVos. But even the “adults in the room have” become Trump enablers. General McMaster, a war hero from Desert Storm, an intellectual who authored the preeminent book on Vietnam, and a pioneer behind the counterinsurgency strategy in Iraq, lied to protect Trump. The only solution now is to elect a new president in 2020.

You are making a good faith effort to analyze a problem and come up with a solution. But the decision makers are not playing by the same rules. They are willing to ignore facts and lie to make policy. The administration has no problem ignoring the overwhelming scientific evidence supporting climate change. They have no problem taking away health care from millions of Americans. I promise you, they will have no qualms about denying student loan forgiveness to borrowers.

Posted by: anon JD/MD | Jun 20, 2017 7:59:40 AM

Are you familiar with the work of Philip Hamburger on the administrative state? In our Constitutional system laws come from elected officials, the legislature - not from career bureaucrats.

Our Constitution is far from obsolete. If you prefer a world ruled by an unelected cadre of elites, I suggest you head to Brussels.

Posted by: todd | Jun 20, 2017 8:16:31 AM


You are correct insofar as both sides of the aisle appear to view graduate students as piggybanks and cast a wary eye at PSLF. But note that limiting forgiveness to $57.5k as the Obama admin floated is very different from cancelling the program altogether. And rePAYE does not extend graduate loan repayment to 25 years; perhaps you have it confused with Trump's proposal for graduate loans, which extends repayment to 30 years. IBR (Bush 43): 25 years. PAYE and REPAYE (Obama): 20 years. TrumpIBR or whatever it will be called: 15 years undergrad, 30 graduate. That being said, REPAYE had a major departure from IBR and PAYE in that it considers household income for payment purposes even if a couple is married but filing separately. I believe REPAYE also allows more interest to ultimately accrue but I don't recall the specifics offhand.

Posted by: Unemployed Northeastern | Jun 20, 2017 12:06:39 PM