When Congress passed a student-loan reform law in 2007 that included debt forgiveness for those who work a public-service job for 10 years, many lauded the move as a way to help graduates dig out from college debt and to attract people to lower-paying, public-interest professions. Eligible employers apparently could include the government, nonprofits, advocacy groups, public schools or public hospitals, for example.
Now that it’s been almost a decade since the law was passed, many borrowers are expecting to be rid of their student loan balances this year — but they could be in for a rude awakening. The New York Times reports that a number of borrowers who applied for the government’s Public Service Loan Forgiveness (PSLF) Program were notified that their employers don’t qualify for forgiveness after all, despite being told otherwise previously.
The Department of Education is now being sued by four borrowers and the American Bar Association. The plaintiffs in the case claim to have received letters from FedLoan Servicing, the administrator of their federal student loans, verifying that their employers were eligible for PSLF — only to be notified later that they weren’t. In the most recent development of the case, the federal agency stated the FedLoan decision was not binding and could be rescinded at any time.
The news is troubling for borrowers who had been banking on becoming student-loan-free, and may leave some regretting choosing lower-paying jobs post-graduation over more lucrative jobs in the private sector.
Though the case is still ongoing, about 553,000 borrowers could be affected by the outcome; that’s about how many have submitted certification forms to qualify their employers and were told by FedLoan at some point that their jobs had been approved.
While it’s unclear what the outcome will be — or even if the Department of Education will ever clarify how they make their decision on who qualifies — it might be a good idea for those who were depending on forgiveness to come up with a backup plan that assumes those student loan payments aren’t gone for good. Learn how you could pay off your student loans faster using this clever strategy, and figure out if refinancing could help ease your burden.