Launched in 2008 as a provision of the College Cost Reduction and Access Act (CCRAA), the Public Service Loan Forgiveness program's objectives were pretty straightforward. The idea was to create a mechanism by which those who worked full-time in public service and made a good-faith effort at paying off their loans could discharge those loans after a certain fixed period. Supporters of the PSLF argued that that education is increasingly an expensive burden — and the historically low pay associated with public service work could keep interested but indebted students away from work that needs doing. Creating a financial incentive could help push more of those students into public service work.
As it turned out, that simple concept ended up being more complicated in implementation than initially planned. It took a few years after rollout for the government to solidify an official form borrowers could use to make sure their work qualified as public service. And some of the requirements for having a balance forgiven became well known — 120 monthly payments (10 years), while working full-time for a qualified employer. But others things — like the fact that it has to be a “qualifying plan” or that borrowers need to consolidate their loans to qualify or that consolidating resets the PSLF payment clock back to zero — those things were not as well understood.
Well, at least at not until recently anyway. Because lots of borrowers who went on to work in public service are now reaching the 120 payments mark — and applying to have their loans forgiven. And they are being denied. According to the Education Department, as of September of last year more than 41,000 borrowers had requested forgiveness, but just 206 had had their loans discharged.
It’s a situation that has, unsurprisingly, generated a tidal wave of complaints from borrowers — and increasing pressure on the Consumer Finance Protection Bureau (CFPB) to do something about the apparent gap between borrowers and the qualifications for this program. As of last week six Democratic senators, including presidential candidates Sen. Elizabeth Warren of Massachusetts and Sen. Kirsten Gillibrand of New York, wrote the CFPB demanding more information on the CFPB’s oversight of the loan servicers the federal government pays to manage its trillion-dollar student loan portfolio.
So, how did this go so wrong?
The Question of Qualifying
At base the issue that recurs through the applicants who were rejected for the PSLF — despite there being a wide variety of specific issues — is a gap between what they thought they had to do to qualify, and what they actually had to do.
“I thought, 'Oh great, I must qualify for this program,' ” Sarah Krainin told NPR last year. She used loans to pay for college and a master's degree and now teaches at a public university. “And I asked my servicer at the time, 'Am I gonna qualify for [PSLF]?' And they said, 'Yes, you have federal loans. You qualify.' ”
She believed her servicer and only learned after six years of making payments that she actually had the wrong kind of federal loan to qualify.
And this problem, according to a 2017 study by former CFPB ombudsman Seth Frotman, indicates that many borrowers only found out years into payments that they had the wrong loan, the wrong plan or the wrong type of job to qualify — and that the workers at the servicers were often not up to the task of properly informing customers or managing their paperwork.
“The current federal programs described in our 2013 report were designed to protect borrowers from the long-term economic consequences of the rising student indebtedness shouldered by many who pursue careers in public service,” Frotman wrote. “Unfortunately, too often this is not the case.”
The GAO made similar findings in 2018 regarding how deep confusion ran amongst borrowers when it comes to these loans.
In the past the CFPB has accused some servicers of intentionally misleading borrowers, those seeking PSLF and otherwise. A 2017 lawsuit against nation’s largest loan servicer, Navient, charged it “created obstacles to repayment by providing bad information, processing payments incorrectly, and failing to act when borrowers complained.”
Pressing for Further Action
In their new letter to the CFPB, the Democratic senators reference a more recent lawsuit, filed by the New York attorney general, against another servicer alleging that its "managers directed representatives not to provide information on PSLF eligibility criteria to borrowers" who called "seeking information about the program."
That action, however, was under different management, during Richard Cordray’s tenure as executive director. The CFPB under Interim Director Mick Mulvaney and current Executive Director Kathleen Kraninger has been markedly less interventionist and litigious. Which dissatisfies the Democratic lawmakers who wrote the CFPB last week greatly.
“We are concerned,” the letter reads, “that CFPB leadership has abandoned its supervision and enforcement activities related to federal student loan servicers. This suggests a shocking disregard for the financial well-being of our nation's public servants, including teachers, first responders, and members of the military.”
Kraninger was also explicitly asked during her appearance before the Senate in early March about the PSLF program by New Jersey Sen. Bob Menedez — though at the time she was unable to offer any specific comments on the program, and instead told the senator she would get back to him.
As of last week, the CFPB has offered no official response to the letter from the senators, or offered any public comment on the ongoing troubles with the PSLF.