A dysfunctional federal loan forgiveness program is throwing a wrench in the long-term financial planning of workers in Vermont, where the government and nonprofit sectors together employ roughly a third of the state’s workforce.
In 2007, Congress created a program intended to wipe out the federal student debt of qualified public servants who made 10 years of on-time, monthly payments. But the program has been beset by administrative problems.
More than 28,000 workers in the United States applied for the program. Just 96 people nationwide have had their loans actually wiped clean, according to the New York Times.
The Public Service Loan Forgiveness program was created to address the rising cost of education and encourage graduates to take lower-paying jobs in government or nonprofits. A decade later, the first cohort of people who were eligible – in theory at least – to have their loans forgiven applied to do so.
A subsequent Government Accountability Office report pinned the dismal forgiveness rate on administrative failings with the private loan servicers who process most federal students loans, and at the U.S. Department of Education, which the GAO said had never given clear guidance to loan servicers about the program’s rules. The program is the subject of at least three lawsuits, including in Massachusetts, where Attorney General Maura Healey has sued FedLoan Servicing, which does the bulk of the servicing for PSLF-eligible loans, for deceptive practices.
It’s unknown how many in the Green Mountain State are enrolled in the program. A spokesperson for the U.S. Department of Education said no data was available. But tens of thousands of Vermonters work in eligible jobs. Nonprofits play an outsized role in Vermont’s economy, and employ, by one estimate, one out of seven Vermont workers. And federal, state, and local government positions together represent one out of six jobs in the state, according to Department of Labor data.
Sarah Kulig, an art therapist at Centerpoint Adolescent Treatment Services in South Burlington, has been making monthly payments through the Public Service Loan Forgiveness since at least 2014, she said. But FedLoan has told her that she is only qualified for about a year’s worth of payments.
A common problem reported by Public Service Loan Forgiveness participants is that borrowers can be penalized for making extra payments. An additional payment can put a borrower in “paid-ahead” status, which changes the way payments are recorded. Kulig has said that a series of her own payments were disqualified after she made an extra deposit, but that FedLoan, her servicer, has also told her that at least five months of payments she’s certain she made didn’t happen.
She’s asked FedLoan to review her account and send her an explanation. They’ve assured her they will, Kulig said – but that was 11 months ago. In general, she said she’d found it extraordinarily difficult to get information about the status of her payments.
“You have a master’s degree and you hold a job that’s kind of complicated. Why is this so hard?” she said.
Grace Pazdan, a consumer-rights attorney working for Vermont Legal Aid, called her own experience with the Public Service Loan Forgiveness program “Kafkaesque.” She was told by FedLoan a series of payments weren’t qualifying because she’d underpaid by one cent, despite the fact that the loan servicer had calculated her monthly payment.
Rep. Peter Welch hears from Leahn Bass about student debt. Bass has about $20,000 in federal student loans.
“If you had told me to pay an extra cent – I would have paid it!” she said.
And Laurie Smith, who works at Local Motion in Burlington, said she lost about a year’s worth of qualifying payments after she sent in an income-verification form late while going through a divorce. And Smith said she’d found it nearly impossible to get straight answers about the status of her repayment plan.
“At some point the dishes need to get done. You can’t invest that time banging your head against the wall trying to get answers. It gets exhausting,” she said.
Smith said she’d decided to get a second associate’s degree specifically because of the Public Service Loan Forgiveness program. If her loans aren’t forgiven, she said the results would be “catastrophic” financially, she said.
Enough Vermonters have complained to the state’s congressional delegation about the Public Service Loan Forgiveness program that Rep. Peter Welch, D-Vt., held a forum on the program this summer, before the federal government’s reports on forgiveness rates came out. And Welch, along with Sens. Patrick Leahy, D-Vt., and Bernie Sanders, I-Vt., in October all signed onto a letter sent jointly by over 150 Democratic members of Congress to U.S. Secretary of Education Betsy DeVos about the program.
The letter excoriated the Education Department for mishandling the program, reducing oversight of loan servicers, and ignoring mounting warning signs about dysfunction within the Public Service Loan Forgiveness program. It also asked the department to release detailed data about the program’s implementation by Nov. 27.
Spokesmen for Leahy and Sanders both said Thursday – two days after the Nov. 27 deadline – that the Senators had received no reply from DeVos. A Department spokesperson did not respond to questions sent by VTDigger.
“We’re not getting from the Trump administration anything but resistance to … making this thing work administratively. And it’s clear that Betsy DeVos is hostile to this,” Welch said in an interview earlier this month.
The Vermont Student Assistance Corporation routinely gets calls about the Public Service Loan Forgiveness, according to CEO Scott Giles. VSAC provides student loans and financial counseling for Vermont students, but it no longer services federal loans.
Even though VSAC is no longer a federal loan servicer, Giles said, the company will provide counseling to any Vermonter with a student loan question or problem.
“Given the complexity of the system as it was set up, and candidly the lack of priority that the Department of Education gave this … it’s unfortunately not surprising to me that people weren’t being given the advice to successfully participate in this program,” Giles said.
VSAC stopped servicing federal Direct Loans in 2016 because of how the department structured its payments to servicers, Giles said. Complicated repayment programs like the Public Service Loan Forgiveness typically required 20 to 30 minute conversations with borrowers, since basic eligibility requirements are complicated. Borrowers need to have the right kind of employer, have consolidated their loans into the right kind of federal loan, and be enrolled in the right repayment plan.
If student loan servicing is a problem in general, Giles said, it’s in large part because the Department of Education’s way of paying back servicers prioritizes quantity – not quality.
“The compensation model they were providing to the servicers required you to get your average call time down well under 5 minutes,” he said.