• Student Loan Ombudsman, Supervising Attorney, Consumer Protection Division
    Illinois Attorney General's Office

This article was originally published in the NAGTRI Center for Consumer Protection Monthly newsletter.

The Public Service Loan Forgiveness (PSLF) program was enacted by Congress in 2007 to discharge federal student loans for borrowers who devoted ten years of their careers to public service. The first borrowers became eligible for discharge in October of 2017, and the problems with administration of the program quickly became apparent.

Application approval rates for PSLF loans are approximately one percent and the federal government has been unable to improve those rates since the beginning of the discharge period. States are taking action to address the problem in a number of ways. State attorneys general have sued servicers for a variety of unlawful conduct that affects program eligibility. New state laws on student loan servicing have created new avenues for action. State banking regulators now have servicer oversight and new student loan ombuds are spearheading outreach initiatives to educate borrowers on the program.

The Problem

As of June 2019, the U.S. Department of Education has processed 102,051 applications for Public Service Loan Forgiveness (PSLF) but has approved only 1216, just over one percent.1 The $700 million dollar fix passed by Congress in July 2018, Temporary Expanded Public Service Loan Forgiveness (TEPSLF), has fared little better. TEPSLF has received 53,523 applications as of May 2019 and approved 661, approximately one percent.2

The first borrowers became eligible for the plan in October 2017, and by the fall of 2018, problems administering the first discharges came to light. In September 2018, the General Accountability Office released a report finding that the U.S. Department of Education needs to provide loan servicers and borrowers with better information about PSLF.3 Around the same time, the Department released information showing an application approval rate of less than one percent through June 30, 2018.4 In October 2018, multiple state attorneys general sent a letter seeking more information on the topic.5 The Department’s July 2019 response contained little information and states renewed their call for transparency in the program in August 2019.6 In September 2019, the GAO issued a report calling for improved TEPSLF processes to help drive up the application approval rate for Congress’s PSLF fix.7

Student Loan Servicing Litigation

State attorneys general have brought student loan servicing lawsuits that address aspects of the PSLF problem. For example, Illinois, Washington, Pennsylvania, California, and Mississippi all have lawsuits against Navient alleging in part that Navient steers people away from Income Driven Repayment (IDR) Plans and into forbearances and deferments.8 The states allege that Navient does so because it is less costly for the company to put struggling borrowers in forbearances than it is to put them in IDR plans. IDR  plans are qualifying plans under PSLF and diverting students from these plans drives down the number of eligible applicants.

Massachusetts and New York each sued the Pennsylvania Higher Education Assistance Agency (PHEAA), the parent company of FedLoan, which has the exclusive contract to service loans for the PSLF program.9 Each state alleges that PHEAA is miscounting the number of qualifying payments and unnecessarily delaying IDR applications, unlawfully adding to the 120 payments borrowers have to make to receive loan forgiveness.

Student loan servicers and the U.S. Department of Education have attempted to block these actions by arguing that state law claims are preempted or that the federal Privacy Act of 1974 bars state action. Both of these arguments have been rejected by courts. For example, the Seventh Circuit ruled that state law causes of action against student loan servicers were generally not preempted by federal law, and gave little deference to the Department’s interpretation finding preemption.10 Similarly, a federal district court ruled that the Privacy Act did not bar Navient from turning over information requested by the Pennsylvania Attorney General’s Office.11 The same court ruled that Pennsylvania’s action was not preempted; that ruling is on appeal at the Third Circuit.12

The Department of Education and student loan servicers are using the same roadblocks to try to impede state banking regulators. Connecticut attempted to examine PHEAA’s books on PSLF in the fall of 2017. PHEAA refused to turn over the requested information at the direction of the U.S. Department of Education. PHEAA ultimately sued Connecticut and the Department seeking resolution of the stand-off.13 The U.S. Department of Education’s motion to dismiss was denied and the parties are currently preparing for summary judgment.14

Outreach and Pitfalls to Avoid

State employees are eligible for forgiveness under the program. As such, state attorneys general offices have an incentive to see that their employees avoid the pitfalls that are plaguing the program. Illinois’s Student Loan Servicing Rights Act went into effect in 2019 and created the position of Student Loan Ombudsman, whose duties include outreach on student lending.15 The Ombudsman began an outreach initiative on PSLF in 2019 and started with presentations to employees of the Illinois Attorney General’s Office. While there are many problems with the PSLF program, the Illinois initiative highlighted the following:

Fill out an Employment Certification Form (ECF)

Filling out the Employment Certification Form (ECF) not only certifies whether your employment qualifies, it also provides a count of the payments that FedLoan considers to be qualifying. Getting this information early can help resolve any issues before ten years of payments, keeping the amount of time the borrower is paying on the loans to a minimum.

Watch out for paid-ahead status

Do not pay more or less than your monthly payment each month or your payment may not count. While it may seem like the responsible thing to do, paying extra on your student loan can lead to paid-ahead status.16 While in paid-ahead status, subsequent payments do not count toward the 120 required under the program. Borrowers can request that extra payments not result in paid ahead status when remitting payment and borrowers who end up in paid ahead status can ask their servicer to remove the status.

Apply for TEPSLF only after denial for PSLF

TEPSLF can help borrowers who were making payments on the wrong repayment plan. In order to qualify for TEPSLF, however, a borrower must first be denied for loan discharge under PSLF, so make sure to apply for PSLF first. According to the GAO, 71 percent of TEPSLF requests through May of 2019 were denied because the borrower did not first apply for PSLF.17

Conclusion

State involvement in PSLF is likely to increase going forward. On November 22, 2019, a coalition of 21 state attorneys general18 filed an amicus brief in support of the borrowers seeking stronger PSLF oversight in Weingarten et al. v. DeVos.19 The bipartisan coalition highlights how PSLF allows states to attract and retain talent that would otherwise need to seek better compensated employment. The Department’s failure in the administration of the program thus harms not only state citizens, but states themselves in their role as employers. This brief, which was filed at the District Court level, highlights how states have a broad interest in PSLF and how more states are likely to get involved in the issue moving forward.

Endnotes

  1.   https://studentaid.ed.gov/sa/about/data-center/student/loan-forgiveness/pslf-data.
  2.   Public Service Loan Forgiveness, Improving the Temporary Expanded Process Could Help Reduce Borrower Confusion, United States Government Accountability Office, September, 2019, available at https://www.gao.gov/assets/710/701157.pdf.
  3.   https://www.gao.gov/assets/700/694304.pdf.
  4.   https://studentaid.ed.gov/sa/about/data-center/student/loan-forgiveness/pslf-data.
  5.   October 4, 2018 multistate attorney general letter to U.S. Department of Education Secretary Betsy DeVos, available at http://www.illinoisattorneygeneral.gov/pressroom/2018_10/2018104-Problems_in_PSLF_Program_AG_Letter.pdf.
  6.   August 28, 2019 multistate attorney general letter to U.S. Department of Education Secretary Betsy DeVos, available at http://illinoisattorneygeneral.gov/pressroom/2019_08/Letter_to_ED_on_PSLF_response.pdf.
  7.   Public Service Loan Forgiveness, Improving the Temporary Expanded Process Could Help Reduce Borrower Confusion, United States Government Accountability Office, September, 2019, available at https://www.gao.gov/assets/710/701157.pdf.
  8.   People v. Navient et al., , 2017 CH 00761(Ill. Cir. Ct. Cook Cty.); complaint available at http://www.illinoisattorneygeneral.gov/pressroom/2017_01/NavientFileComplaint11817.pdf; State of Washington v. Navient et al. No. 17-2-01115-1 SEA, (Wash. Super.Ct. for King Cty.) complaint available at https://agportal-s3bucket.s3.amazonaws.com/uploadedfiles/Another/News/Press_Releases/20170118ComplaintRedacted.pdf; Pennsylvania v. Navient Corp., 354 F. Supp. 3d 529 (M.D. Pa. 2018), motion to certify appeal granted, 3:17-CV-1814, 2019 WL 1052014 (M.D. Pa. Mar. 5, 2019); People of the State of California v. Navient et al., Case No. CGC-18-567732 (Cal. Super. Ct.,Cty. of San Francisco); complaint available at https://oag.ca.gov/system/files/attachments/press_releases/CA%20AG%20First%20Amended%20Complaint%20-%20Navient.pdf; State of Mississippi v. Navient et al. Civil Action No. G2018-982 0/3 (Miss. Chancery Ct. Hinds Cty. available at http://www.ago.state.ms.us/wp-content/uploads/2018/07/Navient-complaint.pdf.
  9.   Commonwealth v. PHEAA, 1784 CV 02682 (Mass. Sup. Ct.,Suffolk Cty.  2017), complaint available at: https://assets.documentcloud.org/documents/3943786/Massachusetts-v-PHEAA-Complaint.pdf; People of the State of New York v. PHEAA, 1:19-cv-09155 (S.D.N.Y. 2019), complaint available at: https://ag.ny.gov/sites/default/files/pheaa_complaint_with_file_stamp.pdf.
  10.   See Nelson v. Great Lakes Educ. Loan Services, Inc., 928 F.3d 639, 651 (7th Cir. 2019).
  11.   Pennsylvania v. Navient Corp., 348 F. Supp. 3d 394, 398 (M.D. Pa. 2018).
  12.   Pennsylvania v. Navient Corp., 354 F. Supp. 3d 529 (M.D. Pa. 2018), motion to certify appeal granted, 3:17-CV-1814, 2019 WL 1052014 (M.D. Pa. Mar. 5, 2019).
  13.   Pennsylvania Higher Educ. Assistance Agency v. Perez, 3:18-CV-1114 (MPS), 2019 WL 4393592 (D. Conn. Sept. 13, 2019).
  14.   See Id.
  15.   See 110 ILCS 992/10-5.
  16.   See 34 CFR 685.211(a)(3)(ii).
  17.   Public Service Loan Forgiveness, Improving the Temporary Expanded Process Could Help Reduce Borrower Confusion, United States Government Accountability Office, September, 2019, available at https://www.gao.gov/assets/710/701157.pdf.
  18.   California, Colorado, Connecticut, the District of Columbia, Delaware, Idaho, Illinois, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Mexico, North Carolina, Oregon, Vermont, Virginia, Washington and Wisconsin.
  19.  Weingarten et al. v. DeVos, 1:19-cv-02056 (U.S. Dist. Ct.  for the Dist. of Columbia, 2019).

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