Federal Judge Rules Against ED in Public Service Loan Forgiveness Lawsuit

By Allie Arcese, Director of Communications

By Allie Bidwell, NASFAA Senior Reporter

A federal judge on Friday decided the Department of Education (ED) acted “arbitrarily and capriciously” when it retroactively told three student loan borrowers that their jobs did not make them eligible for loan forgiveness under the Public Service Loan Forgiveness (PSLF) program.

A group of attorneys joined the American Bar Association (ABA) in December 2016 to sue ED after the agency told the borrowers, who work in public-interest positions, their employers did not meet the program requirements for forgiveness, specifically that public service was not the “primary focus” of the employers. The lawsuit alleges ED adopted new standards for determining whether non-501(c)(3) not-for-profit organizations meet PSLF requirements. The lawyers had submitted Employment Certification Forms (EFCs) that were previously approved by FedLoan Servicing, the company that handles PSLF loans, signaling they were on track to receive loan forgiveness. Court filings from ED gave the impression that borrowers cannot rely on FedLoan Servicing to guarantee whether they qualify.

In his ruling, U.S. District Judge Timothy J. Kelly said ED must reconsider the PSLF denial letters for three of the four lawyers named as plaintiffs in the lawsuit. Kelly rejected, however, the ABA’s claim that the department’s actions violated its due process rights by claiming the association was not a qualified employer, after several employees had received letters to the contrary, and after the ABA had informed prospective employees of its status as a qualifying employer. Several of the individual lawyers named in the lawsuit worked for various branches and departments of the ABA, including its Pro Bono Asylum Representative Project (“ProBAR”), which provides legal services and education for detained unaccompanied immigrant children.

ED argued that the borrowers’ rejection letters did not have “an immediate or significant practical effect” on the individual plaintiffs because their “eligibility for PSLF had not yet been finally determined.”

“This is nonsense,” Kelly wrote. “In the face of growing debt burdens, the individual plaintiffs structured their careers and long-term financial plans around their eligibility for the PSLF Program. [ED’s] determinations quite obviously had an ‘immediate’ and ‘significant’ impact on their ability to plan their careers and finances, despite the fact that they have not had (and may never have) the opportunity to submit an application for loan forgiveness.”

The ruling vacated two standards ED applied to determining whether non-501(c)(3) not-for-profit organizations meet PSLF requirements—whether the organization’s “primary purpose” is public service, and whether education is delivered in a “school-like setting”—because it did not properly notify the borrowers of the changes, or consider the impact of the change.

President Donald Trump has repeatedly suggested cutting the PSLF program in his federal budget proposals. Not only did Congress reject those suggestions, but it also allocated additional funding for ED to reconsider denied applications.

ED in May announced it would begin reconsidering applications under the Temporary Expanded PSLF (TEPSLF) program, with $700 million from Congress over two years. The intent is to expand PSLF to borrowers who made all or some of their 120 monthly payments under extended or graduated repayment plans, rather than an approved repayment plan. A borrower’s application would be reconsidered, according to ED, if it was previously denied because “some or all of the payments were not made under a qualifying repayment plan for PSLF.”

ED in November also announced it was creating a PSLF help tool—which has since been launched—to assist borrowers in better understanding the PSLF program, informing them of any necessary or suggested actions to take in order to qualify, helping them self-assess their eligibility using employment information, and helping them decide which form to submit—an ECF or an application for loan forgiveness.


Publication Date: 2/25/2019

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