For debt-ridden Americans in federal student loan forgiveness programs, October is a month of hope and trepidation.
The first wave of college graduates who were accepted into the Public Service Loan Forgiveness Program 10 years ago and made their payments faithfully each month are eagerly waiting to find out this October whether their debt is wiped clean, as promised.
In addition, a lawsuit charging the Department of Education with reversing its course on student loan forgiveness goes to a hearing in early October.
What happens will not only determine the fate of the first borrowers to complete the program — it’s a bellwether for the more than half a million college graduates enrolled in the program who are anxiously watching to see whether the government upholds its end of the bargain. The Department of Education created the program in 2007 so that college students could have their student loans wiped out if they worked in a public service job after graduation and followed rigorous repayment guidelines for 10 years.
So far, the signals from the government have been unsettling.
The lawsuit against the Department of Education, which is set for hearing in U.S. District Court on October 6, asserts that four borrowers — all attorneys — had their years of public service work disqualified retroactively. They had graduated with six-figure debt and enrolled in the federal Public Service Loan Forgiveness Program, working as public service attorneys for nonprofits and following the program’s rigorous repayment guidelines. Year after year, the government led them to believe they were on track for loan forgiveness.
Then, without warning, the complaint says, the education department did an about-face last year, disqualifying their workplaces, discounting their years of public service, and “dashing their hopes for future financial security.”
The attorneys worked for the American Bar Association, the American Immigration Lawyers Association and Vietnam Veterans of America, all organizations that had qualified for the student loan forgiveness program – until it was almost time for the government to make good on its promises.
The American Bar Association lambasted the education department’s actions.
The Department of Education’s decision to apply this new policy retroactively was “outrageous,” showing that the letters the department issued to the four law students certifying their eligibility “are not worth the paper they were written on,” Bar Association Executive Director Jack Rives said in a statement.
New policy “remarkable for its callousness”
Consumer advocates and organizations representing student loan borrowers have also denounced the agency’s position.
“This means you could be accepted into the program and make payments for 8 years or more, only to find that you don’t qualify,” said Natalia Abrams, executive director of Student Debt Crisis, a nonprofit dedicated to reforming higher education loan policies. “It sent a chill down the spines of borrowers everywhere.”
The ABA and the four attorneys filed a complaint against the Department of Education in December 2016. But rather than clarify whether their organizations qualify as public service nonprofits, the Department of Education’s latest motion to dismiss the case, filed this August, threatened the other half-million Americans in the Public Service Loan Forgiveness program.
The department argued that its letters approving students participation in the loan forgiveness program were invalid. Acceptance into the program, the agency said, was merely an “interim” decision and could be rescinded at any point. The department added it has not yet made a decision to forgive any student loans. Chong Park, a partner in the law firm Ropes and Gray who is representing the ABA and the four plaintiffs, called the agency’s reversal “cavalier,”“unfair” and “unlawful.”
The new policy sent shock waves through the 550,000 students already accepted into the forgiveness program who trusted the government to uphold its end of the bargain. Like victims of a scam, borrowers feel shocked, frightened and betrayed.
“It’s horrible,” said Texas parole officer Brian Jones, who has about $30,000 in loans. “I was really depending on that to move on with my life and I don’t know what I’m going to do.”
The government’s stand “is remarkable for its callousness,” said Abrams. “People planned their lives around this program. Now they may lose their ability to save for retirement or buy a house.”