By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in Asia and is currently researching a book about textile artisans. She also writes regularly about legal, political economy, and regulatory topics for various consulting clients and publications, as well as scribbles occasional travel pieces for The National.
The Consumer Financial Protection Bureau (CFPB) has today released a report on how student loan servicer failures could deprive borrowers who’ve pursued public service careers from debt relief to which they’d otherwise be entitled.
The report itself could serve as yet another case study of what’s wrong with the neo-liberal playbook.
Congress created the Public Service Loan Forgiveness (PSLF) program in 2007 to forgive (some) student debt incurred by those who choose public service careers. These include members of the military; teachers; social workers; prosecutors and public defenders; police, firefighters, and other first responders; Peace Corps volunteers and members of AmeriCorps; nurses and doctors, according to the text of prepared remarks CFPB director Richard Cordray is scheduled to make today in Richmond.
The CFPB estimates that one-quarter of the U.S. workforce is currently employed by a public service employer. Part of the problem– as the report recognizes– arises from new credentialing requirements for many public service positions (report, pp. 1-3). This leaves many aspirants “caught in the crossfire of two economic trends – the need to earn an advanced degree for a career in these fields, and the rising costs involved in securing those credentials”, according to Cordray’s remarks.
The PSLP program forgives some student loan debt for qualifying borrowers after they’ve made 120 timely payments– e.g., ten years of payments. Eligibility provisions are tightly drawn– and only apply to federal direct loans. Various gotcha provisions seem designed to knock out rather than draw in borrowers (I know, I know, that’s a bug, not a feature). These include being enrolled in a qualifying repayment plan– e.g., an income-driven repayment plan– and making 120 timely payments while employed full time by a qualified public service employer.
Role of Servicers
And, guess what: who administers these complex requirements? Why, the student loan servicers!
Now, how does this work in practice? I bet regular readers can guess how well that’s worked out.
The problems the CFPB report documents are apparent, even though it will not be until October of this year before the Department of Education begins accepting the first applications for debt relief (since it’s necessary for a borrower to make a minimum of ten years of payments before any relief may be granted and Congress only created the program in 2007).
More than 550,000 borrowers have thus far signalled at least an initial intention to pursue debt forgiveness under the program.
The CFPB report sidestepped estimating how many people otherwise eligible would find their ability to secure debt forgiveness thwarted by servicer mistakes and misinformation. The agency reported that 10% of the 8500 federal student loan complaints it received in the one-year period covered by the report– 1 March 2016- 28 February 2017– concerned the program (report, pp. 11-12). During this period, the CFPB Bureau saw a 325 percent increase in student loan complaints, involving 320 companies (report, p. 6).
Let’s turn to Cordray’s prepared remarks again for some of the depressing reality that the CFPB’s investigation revealed:
But borrowers reported that servicers are giving them the runaround in ways that can hamstring their progress. They complained about servicers providing incorrect or inadequate information about their eligibility for loan forgiveness. And they said they do not receive timely or accurate information about eligibility for this program, even when they identified themselves as public service workers. This can stall their progress toward the debt relief they have earned, and can lead to months or even years of unnecessary payments that can cost thousands of dollars and extend their time in debt.
For those who have the time, I recommend looking at the full 50 page report, which discusses in greater detail just how servicers have failed in meeting basic responsibilities. As the report itself is written in soporific bureaucratese, I’d suggest skipping to the litany summarizing borrower complaints and in particular, focussing on the quotations from actual borrower complaints (report, pp. 29-42). Problems include failing to provide clear, accurate and timely information to borrowers, neglecting to recognize and record necessary qualifying information correctly, directing borrowers into programs that don’t qualify for future debt relief despite borrower’s announced intentions, and crediting payments improperly.
These servicer delinquencies are not without consequences. They can and do screw up people’s lives, and cost real people real money. Cordray highlighted the consequences of just one set of mistakes, where a nurse found that prepayment derailed her plans to qualify for the program:
We heard from a nurse who described a series of servicing breakdowns that left her with additional years of unnecessary student loan payments – in part because her servicer never told her she had been bumped off track. To get ahead of her debt, she opted into a program where her employer paid extra toward her loans, putting them in “paid-ahead status.” But then her servicer stopped counting her monthly payments, even though she made them on time and for the right amount. The borrower was not aware that her payments were no longer being counted toward loan forgiveness, which cost her part of her eligible public service. She told us: “I find it outrageous and disheartening that by default, overpaying your bill each month would result in…disqualifying payments. This results in three years of additional payments, which is real money.”
Allow me to include another example– that of a borrower whose servicer failed to tell him he didn’t qualify for PSLF relief until he’d already completed years of military service and that cost him more than time and money. He was only informed of a PSLF eligibility requirement to consolidate his loans after a service-related injury forced him out of the military:
I was told that none of my active military service, including deployments to Afghanistan, would count for PSLF purposes. This is a slap in the face to all Veterans. PSLF is supposed to provide reward those who serve the public. . . . [M]y military service, in which my leg function was sacrificed, did not count for anything [toward PSLF]. This is contrary to the alleged policy for which the PSLF program was created and it is insulting (report, p. 30).
Other Threats to the Program: Trump Budget Cuts
Trump’s proposed budget cuts include chopping the PSLP program, according to this New York Times account, The Key Spending Cuts and Increases in Trump’s Budget.
Now, how is that possible? More than half a million people have made career and financial decisions over the course of a decade, based on the assumption that they will qualify for student debt relief. What possible justification is there for reneging on this commitment?
The cited rationale is the costs bugaboo. I’ve not made an independent assessment of these claims, but according to this Washington Post account, Watchdog agency blasts government contractor for mishandling student loan forgiveness program:
Projected costs for the program has given some policymakers pause. A Government Accountability Office report in 2015 said the typical borrower in the program owes about $70,000, with 1 in 4 on the hook for more than $100,000. If only a portion of the people going through the verification process receive forgiveness, the government would still be responsible for canceling billions of dollars in student loans. But some say the benefit is worth the expense.
Even if the program costs the government these estimated billions, so what?
Nearly two-thirds of borrowers in the program earn less than $50,000 per year, while 86 percent earn less than $75,000 per year (report, p. 21, citing Department of Education figures).
The Bottom Line
What Is to Be Done? Well, first up, how about free college– a benefit other countries seem able to afford. Free college means no student loans. Graduates unburdened by huge debts have flexibility to pursue careers they’re interested in– whether that be in public service or elsewhere– without any need for debt forgiveness.
The CFPB has been under attack since its inception, subject to an extreme vilification campaign that’s often led its opponents to become unhinged, and go so far as simply making stuff up, as Yves discussed in this post, The CFPB’s Big Opponent, Jeb Hensarling, Rivals Trump in the “Make Stuff Up” Category. Reports such as today’s demonstrate why we need such an agency.