550,000 student loan borrowers panic over loan forgiveness confusion

Once approved for forgiveness, not necessarily always approved

In 2007, the federal government established the Public Service Loan Forgiveness program (PSLF), under which full-time public service employees could have remaining student loan debt forgiven after 10 years of proper payments. 

Or so it said.

In wake of the Education Department's response to a lawsuit on March 23, the requirements for the program have become convoluted—and borrowers' previous approvals for forgiveness are under question.

Last year, four student loan borrowers who had been steadily working toward their 10-year mark for forgiveness discovered they no longer qualified for the program and filed a law suit against the Education Department for acting "arbitrarily and capriciously" in their judgments.

All four borrowers worked in jobs they thought qualified as public service—and in fact were told so by the servicer FedLoan Servicing when they initially applied for the program.

FedLoan approved these borrowers' Employment Certification Forms (EFCs) for the program—but then denied them the following year.

Responding to the lawsuit, the Education Department announced: "FedLoan Servicing's response to the ECF does not reflect a final agency action on the borrower's qualifications for PSLF."

The statement panicked the more than 550,000 approved borrowers who now fear they will reach the 10-year mark only to discover the remainder of their loans won't be forgiven after all.

And to make matters worse, whether or not employers are considered to be in public service isn't the only variable that can prevent already-approved borrowers from qualifying in subsequent years. Writing for the New York Times, Rob Lieber outlines the three additional criteria students must meet in order to qualify and points out the murkiness in each:

1. The borrow must make payments in the right way

Theoretically, 120 payments made on time and in full qualify a borrower for forgiveness—but returning to school or experiencing financial trouble along the way can reset this number.

2. The borrower must have taken out the right kind of loan to begin with

That means any "direct" loan, Lieber explains. And though non-direct loans can be converted to direct loans if transferred into one direct consolidation loan, doing so would wipe out any previous qualified payments. Made 100 payments already? Now you're back to 0.

3. The borrow must be in the right payment plan

When it comes to qualifying for the PSLF, simply paying loans consistently and on time won't cut it—payments must also be income-based. Payments based on graduated or extended plans may not qualify.

You can forgive unpaid balances—and keep current students in school

Experts are encouraging current borrowers who believe they may be affected by the changes to contact their servicer.

Meanwhile, current students considering a career in public service should be aware that the future of the program is uncertain under the Trump administration, writes Anya Kamenetz at NPR. Both President Donald Trump and Education Secretary Betsy DeVos have expressed interest in rethinking the current slate of student loan repayment options (Cowley, New York Times, 3/30; Kamenetz, NPR, 4/5; Lieber, New York Times, 4/7).

Consider asking recent grads to donate time, not money

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