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We Have a Massive Student Loan Forgiveness Program – Why Is It So Complex?

In the decade-plus journey toward forgiveness, borrowers have no way of knowing whether their applications will be accepted.

For a quarter of the nation's workers, public service could mean billions of dollars in student loan forgiveness - but they'll need to be persistent ... and keep their fingers crossed. (Image: Student loans via Shutterstock)

When Camille Schenkkan had to take out thousands of dollars in student loans to pay for Claremont School of Management’s graduate program, she told herself not to worry. She had learned from colleagues also entering the field of arts education about a U.S. government program that would reward her if she spent 10 years making loan payments while working in a nonprofit. Which was exactly the field she wanted to enter anyway. The reward? A large chunk of her student loans would be forgiven as part of the Public Service Loan Forgiveness program (PSLF).

PSLF is not the first forgiveness or assistance program for public servants. Smaller state, federal, local, and university programs have used loan assistance to effectively encourage students to become teachers and public-sector doctors, nurses, and lawyers, often for less pay than in the private sector. But the PSLF program is by far the largest experiment of its kind – both in the scope and scale of its forgiveness. With 25 percent of the nation working in “public service” as the program defines it and some 70 percent of graduates leaving college with student debt – now averaging more than $30,000 – millions stand to profit from the PSLF program’s cancellation of debt.

For Schenkkan, the promise of forgiveness allows her to pursue her passion and offers an early escape from crushing student debt. “It was a carrot of a way you could actually do this,” she said.

But the program’s virtues get lost in byzantine complexity. In order to qualify for its reward, borrowers have to navigate a series of uncoordinated and often unresponsive Kafkaesque bureaucracies, making the program’s promise of forgiveness appear less like a panacea and more like a question mark.

The PSLF program was created in 2007, during the twilight years of the Bush Administration, as part of the College Cost Reduction and Access Act (CCRAA). Previous piecemeal efforts at forgiveness programs weren’t fulfilling a broad enough goal: to encourage people to choose positions in public service and to help them keep those jobs long-term. Panics over predicted labor shortages in hospitals, public schools, and public defenders’ offices indicated to lawmakers that a broader-based program to maintain this critical work was needed. Enter the bipartisan and ambitious CCRAA, widely described at the time as “the single largest investment in higher education since the GI Bill.”

The way it works, in theory, is straightforward:

  1. You have to work full time for the government or at a 501(c)(3) or other eligible nonprofit (as specified in detail on the Federal Student Aid website).
  2. You have to make 120 qualifying payments on an eligible plan toward a consolidated direct federal loan. The Income-Based Repayment (IBR) plan caps monthly payments at 15 percent of your discretionary income (which can be as small as zero); choosing the right repayment program, which will often be IBR, is key to maximizing the program’s benefits.
  3. Once you’ve made 120 payments that meet these requirements – they can be non-consecutive – you can then apply for forgiveness: cancellation of the entire remaining loan balance, tax-free.

In other words, 10 years of public work and qualifying payments mean that the thousands, sometimes hundreds of thousands, of dollars hanging over your head like Damocles’ sword will disappear, once and for all. Considering that many jobs in the public sector require graduate degrees, the effects could be enormous. PSLF might even help to defuse the time bomb of national student debt, which now totals more than $1.3 trillion.

But in practice, every step of PSLF’s process has been extremely confusing – not least because the federal government planned none of them in advance. Many of the required provisions of the program did not exist until years after it was technically underway. Two of the qualifying repayment plans for PSLF – IBR and Pay As You Earn (PAYE) – took effect in 2009 and 2012, respectively. No “Dear Borrower” letter laying out the specifications of the program existed until 2011. Borrowers could not find out if their employment formally qualified and what counted as full time, as part time, or as a proper nonprofit – and therefore, how many qualifying payments they had made – until 2012, when the employment certification form was first introduced.

Student loan lawyers and advocates (many of them borrowers themselves) say that the opaque process, and lack of assistance offered, leads some people to give up. “They don’t make it easy,” said Claire Crowley, a student loan lawyer. “Which is also one of the reasons that people go into default.”Angela Mrozinski, who has been making payments toward forgiveness for four years, has found the touch-and-go development of such an extensive program disconcerting. “It seemed so odd to me that they have this large program, but they are trying to formalize it as they go,” she said.

In 2011, Schenkkan consolidated her federal loans, chose a payment plan, and began making payments toward forgiveness. But in spring 2012, she received a letter informing her that she had made zero qualifying payments, despite the fact that she had been paying for more than 12 months. After many phone calls, she discovered she was on the wrong version of the standard repayment plan: The standard 10-year repayment plan qualified for PSLF, but her 25-year repayment plan, then also called a standard plan, didn’t, despite the fact that there would be nothing left to forgive at the end of a 10-year repayment plan. The Department of Education’s website at the time did not clarify this distinction, she said.

Schenkkan is hardly the only borrower to have missed this difference. Her friend Neal Spinler, who thought he had been paying toward PSLF for two years, made the same error. Many others have made months, sometimes years, of payments only to discover that none of them qualified.

Their experience drives home what longtime student loan lawyer and advocate Heather Jarvis calls the “convoluted complexity” of the entire system. Schenkkan previously worked as a grant writer and considers herself financially literate, but as Jarvis explained, “It doesn’t matter how long you spend on your research and how sophisticated you are because it’s incredibly hard to navigate even when you have accurate information.”

In the decade-plus journey toward forgiveness, borrowers have no way of knowing whether their applications will be accepted. Adding to this uncertainty: The last and most important step of the program is still under construction. The application form for forgiveness does not yet exist. The Department of Education has stated that forms will be available closer to the first eligible date, in 2017.

Spinler didn’t think he would finish paying off his student loans before he was 60, but if all goes according to plan, even in spite of his two lost years, he will qualify for forgiveness in 2022, when he’s 47. Assuming that a quarter of the roughly four million borrowers on a qualifying plan who stand to benefit from the program are public servants, about a million people like Spinler potentially qualify for the program each year. But exact numbers on program participants are impossible to find – because they don’t exist.

That’s because the program isn’t quite a program yet. Even when borrowers obtain correct information about PSLF and take steps to become eligible, they are technically not accepted into the program until after they have made all 120 qualifying payments and applied. This means that the earliest anyone would be eligible to actually enter the forgiveness program is 2017. The Department of Education has no way of keeping count because borrowers may not have voluntarily submitted their most recent employment certification forms. According to a Department of Education spokesperson, nearly 360,000 unique employer certification forms have been submitted as of May 2015. There is no strict requirement that borrowers complete any of the forms until they apply for forgiveness, at which point they are expected to assemble a decade’s worth of documentation as proof.

The stakes are high – and not just for the government. Mrozinski, Schenkkan, and Spinler, among many others, report experiencing doubt, uncertainty, and severe stress throughout the process. Each discussed how the requirements of the PSLF program, along with the usual burden of student loans, affected their search for jobs, working schedules, and family planning.

“You have to make very important decisions that have far-reaching financial implications to take advantage of the benefits,” said Jarvis, “like considering whether to postpone and delay children.” Jarvis added that the stress borrowers feel is understandable. “They’re pioneers in the program, and they don’t have any history, experience, or precedent to rely upon.”

Borrowers are concerned about President Obama’s twice-floated budget proposal to cap the amount forgiven by the program at $57,000, which would limit the program’s benefits for those who need them most. More than one in four public defenders surveyed by the National Legal Aid and Defender Association have in excess of $175,000 in student loan debt, and over half said they would leave the public sector if the program were capped. Legislators have also toyed with the idea of eliminating the program entirely, but all four student loan lawyers interviewed stated that a total termination of the program is not only extremely unlikely but would also not affect those who’ve already taken out loans.

But the program’s “all-or-nothing” benefits are perhaps the most terrifying part. “If it all works out, my loans will be forgiven, and it will be amazing, and I’m really sort of counting on that,” Mrozinski said. “But once people hit this 10-year mark and the government starts to forgive these loans, where is this money going to come from? Are they actually going to support it once they put their money where their mouth is?

“If what I’m doing doesn’t qualify for forgiveness,” she added, “then I’m screwing myself right now.”

Any reform to PSLF has the potential for huge effects – for better or for worse. What’s clear is that for the program to be as powerful as it intends, more transparency and simplicity is needed. The Consumer Financial Protection Bureau (CFPB) estimates that about one in four workers in the United States qualifies for PSLF, but it’s unknown how many qualify yet fail to take advantage of the program. The complexity of program requirements and confusion of program options, the CFPB stated, may act as a “deterrent for borrowers weighing a career in public service.” Jarvis says that the program’s benefits are not as effective as they could be had the program been “simplified and easier to access.”

The Student Aid Bill of Rights, to be implemented within the next year, should streamline some aspects of the process for borrowers. There have been some efforts on the part of the Department of Education to promote the program’s existence to the millions who might be eligible: a revised website, the introduction of necessary forms, and a more simplified and streamlined presentation of the necessary information. According to a Department of Education spokesperson, the Federal Student Aid office, which oversees PSLF, will be planning its first direct outreach campaign about the program to borrowers later in 2015. To help employers provide information about loan forgiveness programs to their employees, the CFPB issued a toolkit and asked public service employers to contact them to take a “Public Service Pledge.”

But student advocates, including Jarvis, have said that until the government and contracted loan servicers are also mandated to provide their clients with full information about available programs, and until outreach efforts become formalized, PSLF’s crucial benefits will remain unsung. In the coming months, the CFPB will release the results of its investigation of servicers failing to provide information or providing misleading information.

For now, the program’s potential beneficiaries can only hope. Schenkkan always educates the intern program she runs all about PSLF and how exciting it is. “But a part of me is worried that it will go away,” she said. “It still seems too good to be true.” If all goes to plan, billions of dollars in student loans will annually disappear. It’s no rolling jubilee, but it’s a giant leap for studentkind.

Resources to help you navigate the PSLF program:

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