Public Service Student Loan Forgiveness is the centerpiece of many borrowers student loan repayment strategy. Using this plan, borrowers work for the government or a not-for-profit agency, and after 10 years of making student loan payments, the debt is forgiven… at least that is the plan.
Unfortunately, many borrowers who plan their life around this program have their applications denied. According to the Department of Education’s Student Loan Portfolio, 34% of the applications resulted in a denial.
Public Service Loan Forgiveness Applications
The only way to track the number of people chasing Public Service Loan Forgiveness (PSLF) is through the employer certification forms. These forms are optional, however the Department of Education encourages borrowers to submit certification forms on a yearly basis or whenever they change jobs. However, because borrowers are not required to complete this form, the exact number of borrowers planning on PSLF is unknown.
In addition to verifying that an employer is an eligible employer, borrowers who submit this form learn whether or not they are on the proper repayment plan, whether or not their loans are eligible, and how many of the required 120 payments they have made.
Bad News for Many Borrowers
It is worth noting that while 1 in 3 certification forms are denied, the approval rating may be even worse than what it first appears. Because many borrowers certify their employment on a yearly basis, they inflate the number of approvals relative to the number of denials.
If we dig a little deeper into the numbers, we see that more than a third of the approvals go to borrowers who have previously certified their employers. For every 5 borrowers with an approved employer certification, there are approximately 4 denials.
Why are borrowers rejected for PSLF?
The Department of Education Portfolio does not list any statistics on the reasons for denial. However, if the Student Loan Forums and reader emails are representative of what is happening nationally, there are two main reasons for denials:
- Loans not eligible for PSLF – In one of the great examples of the abusrdity of the PSLF program, many government loans are only eligible for PSLF, if they are first consolidated through a direct consolidation loan. An example would be the FFEL program loans. So while the debt is eligible, if borrowers haven’t jumped through the hoop of federal consolidation, the months or years spent working towards PSLF will not count.
- Borrowers on the wrong repayment plan – Not all of the federal repayment plans count towards Pubic Service student loan forgiveness. While the income-driven repayment plans do count, the graduated and extended repayment plans do not. Many borrowers are shocked to learn that after years of working at a public service employer, they have to start from the beginning because they made payments under the wrong repayment plan.
Fixing a Public Service Loan Forgivness Denial
Perhaps the most disappointing aspect of a PSLF application denial is that there is often little that can be done to fix the problem.
There is no mechanism in place to retroactively go through federal direct consolidation, nor is there a way to change the classification of prior payments. This is especially frustrating for borrowers who paid more on repayment plans that are not eligible than they would have paid if they were on an eligible repayment plan.
The worst part about this situation is that, according to many borrowers, they were following the instructions of loan servicers who told them they had taken the necessary steps.
With little recourse in place to help the situation, there are only a couple of options for borrowers who feel they have been mislead. They can hire an attorney to potentially fight the Department of Education in federal court, and/or they can file a complaint against their student loan servicer with the Consumer Financial Protection Bureau. We are not aware of any successful individual lawsuits on this issue, however, consumer complaints have led to the CFPB filing a lawsuit against federal servicer Navient for “failing borrowers” in the repayment process.
If you are considering Public Service Student Loan forgiveness, it is critical that you understand the basics and the fine print of the program. Most importantly, be sure to send in your employment certification form at least once a year. Even though it is not required, the step is essential because you want to know of any potential issues as soon as possible.
Readers: Have you been denied a PSLF certification? Please share your story in the comments section, especially if you have had any luck getting things fixed.