More than half a million Americans, from teachers to police, might soon wake up owing an extra year’s salary in student loan debt — all because Trump has an Obama complex.
Nearly 10 years ago, just before the Great Recession hit, President George W. Bush launched a student loan forgiveness program for people in public service. President Obama ran with it, but didn’t actually create it and didn’t vote on it as a senator.
Here’s how it works: Public Service Loan Forgiveness lets government and charity employees off the hook after 10 years of payments instead of 25. No taxes, no penalties, no problems. The debt is wiped clean. Many people will hit that mark and apply for forgiveness in October.
The eligibility guidelines are a little complicated, but pretty clear. Or they were, until Trump.
You’re eligible until we say you’re not
In a court filing late last month, the Education Department said something that makes absolutely no sense at all: That you could not rely on the forgiveness program’s administrator to accurately say whether you qualify for the program.
In other words, even if you filed what’s called an employment verification form annually and consistently got a green light from the federal government for the entire decade, the Education Department could later simply decide you didn’t qualify after all — and refuse to forgive the debt.
This is horrifying on a number of levels. And the only explanation I can come up with is that Trump just wants to undo everything Obama supported, from Obamacare to common-sense water and climate regulations to restrictions on guns for the mentally ill to using phones on planes.
So some of the people whose eligibility has been revoked are suing for the student loan forgiveness they were promised.
The consequences of a broken promise
First of all, if you promise something, you need to deliver. Especially to people putting their lives on the line as firefighters and police.
The program covers not specific job titles, but specific kinds of employer: any government job, down to the local level; certified charities and other 501(c)(3) nonprofits; and also AmeriCorps or PeaceCorps service. It does not cover labor unions, partisan political groups, and nonprofits that don’t have 501(c)(3) status. All in, more than 550,000 Americans are currently in the program, and it’s been growing fast.
If Trump and the Republicans controlling Congress want to change or abolish the student loan forgiveness program to save money, they can do that — and they should say so. President Obama himself was considering changes to the program that would cap forgiveness at $57,500 and save taxpayers $12 billion over 10 years. So maybe that makes sense, but you can’t pull the rug out from under people who have already been working toward forgiveness.
If those folks had known they couldn’t count on forgiveness, they could’ve budgeted differently, enrolled in a different repayment program, and planned to pay off their loans sooner. Now there’s a possibility they face an extra 15 years of accruing interest on top of the tens of thousands in principal they expected to be forgiven. The median debt of people who’ve put in the paperwork for forgiveness is above $60,000.
That has obvious long-term economic effects for those people — they might not be able to buy homes or spend as much, and may have to relocate for other work — and they won’t forget who was in charge when it happened.
But it may also make others trust government promises less. It may discourage some people from choosing to work in public roles rather than the often better-paying private equivalent. People years into the program working for charities might jump ship now rather than take the risk of being stiffed by Trump. And it changes the calculus of going to grad school: People may opt of higher education and further student loans because the pay bump for the master’s or doctorate will take far longer to become worth it.
Why is this happening now?
Last year, a few attorneys working for various nonprofits — the Vietnam Veterans of America, Paralyzed Veterans of America, the American Bar Association, and the American Immigration Lawyers Association — were told they were no longer eligible for the forgiveness program. They had jumped through all the hoops — consolidating into the right kind of student loans, maintaining full-time employment at an eligible employer, making steady income-driven payments.
Nothing had changed: They had even been filling out the optional paperwork, and had previously been told they were eligible. But, suddenly, they weren’t. So they did what lawyers do best. They filed a lawsuit.
The Education Department’s new response to that lawsuit is what’s raising everybody’s eyebrows. It claims that just because applicants submitted an Employment Certification Form, and it was approved, “does not reflect agency action on the borrower’s qualifications for the PSLF Program.”
The federal government uses ECFs specifically to document evidence of employment with qualified public service organizations. On an Education Department FAQ for the program, under a section titled “How can I keep track of my eligibility?”, it literally says you should use this form — because that’s what it’s for. So people file them every year to log the time worked and payments made.
What else could approval of a certification form specifically for the program mean, if not “agency action” on that program?
More bad news
Public student loan forgiveness isn’t the only thing up in the air at the Education Department. Secretary Betsy DeVos is also rolling back new federal guidelines that were meant to make student loan repayment clearer and to single out lousy loan servicers.
Why? Also probably because they had Obama’s name on them. The official reason is “to negate any impediment, ambiguity or inconsistency in the approach needed to accomplish this critical mission … of increasing college access, affordability and quality.”
It’s not clear what DeVos thinks was ambiguous about telling loan servicers to provide accurate and consistent communication to borrowers, or how those instructions would affect the cost or quality of a college at all. But this is the woman who said we might need guns in schools to ward off grizzly bears, after all.
That’s troubling when the federal government has an ongoing lawsuit against the largest student loan servicer, Navient, for allegedly “cheating borrowers” out of $4 billion through “obstacles to repayment by providing bad information, processing payments incorrectly, and failing to act when borrowers complained.”
If you read my column about DeVos in February, you know I wanted to give her the benefit of a doubt. But, apparently much like student loan forgiveness, that benefit can be withdrawn at any time.
Article last modified on April 13, 2017. Published by Debt.com, LLC .