September, 2019
Washington – The Public Service Loan Forgiveness program of the U.S. Department of Education is an abysmal mess. See several earlier posts on it as well as continuing major media coverage.
This post offers two solutions. Before getting to them, new observations are in order.
• Yesterday's hearing by the House Education and Labor Committee was valuable in that two panelists who have lawsuits pending on PSLF had a chance to be heard and they acquitted themselves well. The testimony from the Urban Institute's person, unfortuately, set back the causes his employer stands for, as he obviously tried to distract from establishing accountability. GAO could have been stronger on its panel had there been better questions from the members. The testimony of the Department of Education's person, a civil servant without authority to comment on policy, was successful if the purpose of his appearance was to save a political appointee from having to testify under oath.
• The empty chair on the first panel was that of the loan servicer PHEAA (FedLoan), which also did not want to testify under oath, or to face its accusers. Explaining its absence, PHEAA suggested that as a federal contractor it was not allowed to testify under directions from the Department of Education, which may be true. The Department surely fears what PHEAA might have to say under oath if presented with evidence of wrongdoing. Too bad PHEAA was not subpoenaed along with a political appointee from the Department. Fortunately, the relationship between PHEAA and the Department is becoming public in another forum, a federal district court where a magistrate judge may put sanctions on both for wrongdoing in actions against unwitting borrowers in other programs. See this letter as evidence that the Department and PHEAA are no longer on the same page; that is, working together against the interests of borrowers. Much credit for making this situation public must go to those at the Project on Predatory Student Lending who led the legal fight, and won, on "borrower defense" law.
• Members spent entirely too much time bemoaning the complexity of the PSLF statute and not enough on wrongdoing at the Department and among the servicers. As statutes go, PSLF is actually fairly clear and it could have been implemented successfully had there been a will to do it. It contains several conditions borrowers must meet to receive cancellation of the balance of their loans after ten years of public service, but the obstacles are not so much the conditions themselves as borrowers being uninformed of what they are and how to meet them. So why were so many uninformed? Because there was money to be made by not informing them and, shamefully, by misinforming them. That should have been the focus of the hearing. GAO had already pointed this out, and NASFAA has as well in a recent letter to the Committee. There is also new, disturbing evidence that PHEAA's handling of borrower calls was designed to result in PSLF failure.
• PSLF will not be resolved successfully without focusing on wrongdoing, not complexity. Unfortunately, only once was the word used by a member in nearly three hours of hearings. Aggrieved borrowers are no closer to resolution than they were before the hearing. And, if the remarks of some members are indicative, Congress will go off on a goose-chase of amending statutes and do nothing to correct the wrongs that have been done to borrowers across the country.
As to solutions, let me offer two.
First, the Secretary has broad powers under 20 USC 1082 to correct any situation in which a borrower was misinformed by a servicer, intentionally or otherwise, or any other situation that calls for intervention to protect the purpose of a program. Previous Secretaries have used this power, most notably Secretary Spellings in 2007 when she excused lenders from repaying approximately $800 million of false claims because she said, rightly or wrongly, they may have been misled by the Department. Now is the time to do the same for borrowers misled by the Department and by its servicers. This could be done by outreach to borrowers separately or as part of the Temporary PSLF application. The very purpose of TPSLF was to remedy problems with PSLF and Section 1082 (6) powers should arguably have been part of that effort in the first place.
Second, if necessary, Congress could do for PSLF what it does in other programs that people count on in their retirement planning. For example, potential retirees in the military retirement system, CSRS, and FERS are allowed certain kinds of buy-backs to get themselves retroactively into the right programs that properly recognize their service. If a PSLF borrower was in the wrong repayment program, or had the wrong kind of loan, or otherwise failed to meet a PSLF condition but in fact has ten years of qualifying public service, let the borrower remedy the matter and qualify.
These solutions would go a long way toward doing the right thing by the PSLF program and all the teachers, servicemen and servicewomen, first responders, and charitable workers who have been counting on it.
Meanwhile, Congress must take note of judicial sanctions and consider its own. PHEAA has been sanctioned before by a federal district court, but to no apparent avail. Sanctions on the Department of Education must likewise be examined: servicer wrongdoing does not happen in a vacuum.
