For their next trick, Department of Ed will make 550,000 student loans disappear
Susanna Vogel, Morning Brew
When the federal government’s Public Service Loan Forgiveness (PSLF) started in 2007, the intention was presumably not to make qualification as exclusive as the Met gala. Unfortunately for the Department of Education, less than 1% of eligible borrowers have been approved. This year, a staggering 98% of PSLF applications were rejected.
PSLF is FUBAR: In 2007, the federal government struck a deal with students: commit to ten years of public service, make 120 loan payments on time, then, when the clock strikes midnight, watch your remaining student debt disappear like your clearly marked leftovers in the communal work fridge.
PSLF–eligible borrowers, who shoulder a combined $115.9 billion and average a balance of $87,514 in loans, dutifully upheld their end of the bargain only to have their applications denied in droves.
They feel defeated.
“When I began teaching, it was with the intention that I would be given assistance for my student loans,” writes one commenter on the Department of Education website. “I spent hours on the phone with Federal Loan Servicing to ensure I was on the right track to take advantage of the PSLF. I was lead [sic] to believe that consolidating my loans would put me on track to make the payments toward PSLF, and was told I had done everything needed to qualify. However, in what should have been one of my final years of payments, I was told I was on the wrong payment plan to qualify. Even though I had paid on time, in full, I was denied. I was heartbroken, frustrated, and deflated. My hard work and dedication to public service was not enough anymore? I tried to do everything right and it still wasn’t enough.”
Why it matters for recruiters: Public-sector work, including teaching at Head Start programs and working in healthcare, is often frontline work. It doesn’t pay well to begin with and didn’t get more attractive during a global pandemic. Without the promise of loan forgiveness, many worry the 1.5 million qualifying public sector employers will have difficulty attracting and retaining the necessary talent.
What went wrong: Congressman John Sarbanes, who authored the bill creating PSLF, hoped the program would offer graduates the financial freedom they needed to pursue public service careers.
“This program is a critical factor in helping drive the pipeline of qualified people into public service,” Sarbanes told HR Brew. “In many respects, it inspired graduates to pursue careers in public service. And so any impediment to applicants receiving loan forgiveness obviously undercuts the original purpose of the program and defeats the opportunity to match up really qualified graduates with jobs that can benefit from their talents and their skills.”
Instead, the dismal track record of PSLF approvals has had a chilling effect on mission-driven careers, according to Erin Powers, the Director of Marketing and Communications at the National Association of Student Financial Aid Administrators (NASFAA).
“Seventy-four percent of [our members] reported that they were not confident they would ultimately receive loan forgiveness, even if they follow all of the PSLF requirements,” Powers explained to HR Brew. “This, in turn, prevents employers in the public-service sector from recruiting and retaining quality employees. The employees’ mistrust of the program and concern over their debt can lead would-be public servants into other types of work.”
What’s broken? The short answer: All of it.
Seth Frotman, the executive director of The Student Borrower Protection Center, an organization that advocates for student-loan borrowers, walked HR Brew through the problems:
“There’s this misperception that the people who are rejected are people who just did everything wrong. Nothing could be further from the truth. I think what you start to see is that borrowers are actually doing everything right: They’re making payments and they’re submitting the forms that the Department of Ed told them to, only to find out their student-loan company lied to them, and that the loan that they have been paying on isn’t actually eligible for this program. Or they find out they’re not eligible for the most byzantine of reasons, like they had the wrong HR person fill out the form or their supervisor didn’t date it the right way.”
Making it right. On October 6, the Department of Education announced an overhaul to the program that will put more than half a million Americans on track toward loan forgiveness.
“Borrowers who devote a decade of their lives to public service should be able to rely on the promise of Public Service Loan Forgiveness. The system has not delivered on that promise to date, but that is about to change,” said US Secretary of Education Miguel Cardona in a memo.
The new rules aim to fix past mistakes and increase program flexibility moving forward. Borrowers will have the opportunity to count all previously discounted payments toward their 120 qualifying payments, including payments toward the wrong loan type or repayment plan. By next year, the department will streamline the application process and automatically enroll federal employees and military service personnel in the program.
Bottom Line: Refreshing the PSLF program so that it actually offers a pathway out of debt would be monumental in wooing recent graduates away from the shiny promise of corporate salaries to the do-gooding world of public service.—SV