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).
Servicer Failures
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.
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Another silly thing about PSLF is that you need to sign up for an Income Based Repayment Plan in order to qualify. But at certain incomes, my understanding is that the repayment plan will force you into repayment in less than ten years anyway, so you get no relief.
In other words, you need to have an absolutely lousy income in order to qualify at all. And if your income goes up over the course of the 10 years, you’re SOL.
The relationship between PSLF and IBRP isn’t totally clear to me, maybe someone in the know can comment.
ETA: I think it’s pretty clear that this program is going to be nixed, leaving a lot of people very pissed off.
Don’t worry, ensuring lousy incomes for college grads is a specialty of our Elites.
I am on it now and you are absolutely right. It is useless because it has me paying so much monthly that:
1. I can’t afford the payments still
2. I will be paid up in 10 years
The only reason I keep doing it is that there are NO ALTERNATIVES (I have called) and in case something happened where for some reason I still owed and qualified after 10 years.
Short story: you are screwed. Does anyone know how garnishment works for delinquent accounts? If it comes off of SS when I go to collect I am seriously considering throwing it to the wind and living a good life with my family now, as opposed to never.
I can also add that the servicer I am with, FedLoan Servicing, requires that you reapply each year to have your employment verified… and there is no really competent way to track your payment progress because it is only updated annually.
Hey Roger, glad to hear I understood the program correctly. When you read about PSLF you read things like, “Why aren’t people taking advantage of this?” and so on, when the reality is that it’s not that great of a deal. Like this kind of article, bemoaning why 33 million Americans aren’t bothering.
Unfortunately, I’m pretty sure that garnishment on delinquent accounts can involve wages. Here’s Legal Zoom: https://www.legalzoom.com/articles/how-to-stop-student-loan-garnishment
In any case, the program will end up like HAMP, as Yves has pointed out in the past: spotty, mostly pointless.
Thanks for the links. I am honestly not sure how I heard about the program, most likely word of mouth. Those mouth piece articles should be included in any class action suits brought to these companies (and the government since they are the contractors). I have been working for universities for 3.5 years but enrolled after the first, some payments I believe were retroactive but I really have no idea since the thing is impossible to follow and always asynchronous with reality.
Young graduates signing up for public service jobs tend to be idealistic, community spirited and generally accept significantly lower pay. My experience with young teachers is that they bring fresh ideas, energy and enthusiasm to the schools. As the article mentions, it is somewhat unbelievable how much they are in debt by the time they are done with their accreditation. PSLF was a step in the right direction, they had to demonstrate responsibility by being current with the payment plan for 10 years for the loan to be forgiven.
It is preposterous that (1) the program is run with so much inefficiencies (feature, not a bug as JLS says) and that the rug seems likely to be pulled out from under the program mid-stream willy-nilly. And how is this in any way a Democrat versus Republican divide? Are there no Republicans taking signed up in this program?
It’s worth noting that all of those student loan servicers who are thwarting public servant debt relief were hired by the US Education Department (ED) expressly for the purpose of servicing federally-issued student loans. So one branch of the US government, the Consumer Financial Protection Bureau (CFPB), is lambasting a situation that was directly caused by another branch of the US government.
This fundamental lack of competence is one of my great gripes about the federal government. The Education Department lends too much, and we cry out in dismay when too many students have trouble repaying their debts. The Education Department hires incompetent (and sometimes malicious) loan servicers who play fast and loose with the rules, and we cry out in dismay when students are abused even further. And it’s been this way for YEARS. It’s certainly not new to the Trump administration.
Remind me… Why was it a good idea for the Education Department to get into the business of directly issuing student loans?
It was always a good idea to get the Education Department into directly issuing student loans. They have to answer to, and only to, the taxpayers. The taxpayers whose kids are being screwed over by the entire College/Banksters complex, which is beginning to rival the MIC in size and unaccountability.
Agreed that this is not new to Trump — where the (family blog) was Obama on this? How can you let children fer godsakes borrow 5 to 6 figures, at 3x or more the prevailing home/auto loan rate, a loan that is undischargable in bankruptcy?
If we can’t have free college education like a civilized country, at least we should:
1) clamp down on the ridiculously rising cost of tuition, board and books.
2) loan the students money at 0 interest
–signed, another Grumpy Old Engineer
Here, here. Every day I wake up hoping that the Student Loan Debt bubble has burst, destroying as many things as possible with its tidal forces, because I know that is the only way anyone might ever attempt fix the problem. I am giddy with anticipation whenever I see more bad news, some way to live!
YouWE earn what you learn!Implicit in the authority to issue the currency, is the authority to tax in that currency. How are these loan payments apportioned? In this context, what defines a “tax”?
What distinguishes between “private” v. “public”, in the context of usury, parasitic rent extraction and profiteering?
This all COMPLETELY misses the point: WHY does college cost so much to begin with??? It’s because the Nine Riders can’t read the Constitution, that’s why. WHERE in the Constitution does it say that gov’t has the right to grant exception from Bankruptcy for College Loans? (and remember everyone, the Constitution does not Grant You Your Rights; instead, it Limits the Power of Government!) NOWHERE. Get rid of the the “exception” for student loans (talk about USA exceptionality…) , get rid of the govt guarantee for student loans, which completely releases any burden from the lender and which motivates universities to lard up their campuses with stadia and fancy dorms and workout clubs etc etc etc (notice I didn’t say anything about better labs – that’s pretty much an afterthought) and VIOLA! you can pay for a healthy hunk of your tuition working jobs that dont require a degree. Instead it has beome a matter of, “Can we extract all but the last dollar of benefit from this degree?” And Public Universities like UC are in on this gravy train too.
Because the corrupt government made student debt impossible to discharge in bankruptcy then they realised that every student that graduated into the recession with mountains of nondischargeable debt and no chance in hell of ever paying it back was going to be practically homicidal with rage sooner or later and rather than letting all that searing rage be directed at private banks where it belongs the Democrats decided to give people a slightly better deal and redirect all that anger back at uncle sam, which is why the GOP let it happen. I can’t overstate just how much I hate everything about this shit hole of a country, the more I learn the more I hate.
I like “lambastes” as it implies one is bathing the crony capitalists in hot oil.
Would that it were true!
I had hoped to enroll in the PSLF program but given the convoluted nature of the program, the incompetence of the government backed loan servicers, and now the possibility that the program will be cancelled makes wonder if I should bother. I know why the student loans continue to flow, the government has guaranteed the banks it’s a safe move with big returns (high interest rate), etc. It’s a convenient way to secure revenue.
I have a few questions because I honestly do not know and welcome the insights of others: How is the student loan system, as it currently exists sustainable going into the future? I’ve heard about the “student loan bubble” but I’m not sure if there is anything to this. Also, if people borrow to fund their education but can’t secure employment and a decent wage to pay the debt back this isn’t going to put a major drag on the economy (so much for the “American Dream”)? I believe the past two Federal Reserve heads have expressed concern about this in their economic testimony before Congress. Is it the case that the banks/government are looking to extract what they can, irrespective of whether people can actually pay their loans off?
I guess you pay what you can and remember Michael Hudson’s remark that, “Debts that can’t be paid, won’t be paid.”
It’s sustainable until the bankruptcy provision ends. That won’t happen in Congress, but it could happen in the courts. The “undue hardship” cases are currently decided by the Brunner Test. This reads:
Another period of economic turmoil will rock the current, slogging-along paradigm to the core. Expect to hear a lot about the Brunner test then.
Thank you for your response and reminding me of the Brunner test. The bar is set pretty high to qualify but if things continue as they are it might be too difficult to met the criteria, as you point out.
The fact that student load debt loads are rising much faster (~6% annually) than the incomes with which the loans are repaid (~2% annually) is a classic indicator of a bubble. Rising default (and forgiveness) rates are another indicator, and we’ve seen that as well.
Unfortunately, because the federal government is doing about 90% of the lending, I don’t expect it to change unless there is an explicit policy change. Banks would automatically stop over-lending once default rates got too high and they started losing money, but the federal government can lose arbitrary amounts of money until the end of time. Regardless of the harm it causes all those students trapped in oversized and delinquent loans.
Or maybe students and parents will finally balk. Unfortunately, those college recruiters are pretty adept at convincing young people with insufficient real-world experience to “follow their dreams” and that “it’ll all work out somehow”, and the EIC (Educational Industrial Complex) continues to rake in the dough accordingly.
Heck, I’ve heard of students borrowing more money for school than I borrowed for my house. How is it even LEGAL to lend that much money to an 18 year-old kit who has no assets, no credit rating, and has never held a full-time job?
Thank you for your response. Yeah, it’s hard to for many to walk away from the narrative that the only way to economic opportunity and the American Dream–whatever that may be–is through the valley of student debt. Maybe I’m conflating things here but it seems perverse that an investor–or the big banks–can take capital and invest it in all kinds of risky behavior, drive the economy to the precipice of ruin, but then receive a bailout. But if a family borrows capital to put their kid through college and things don’t pan out in terms of return on the investment in the form of a good paying job their is no way to address this in an equitable way. It appears as though this is a predatory system. And people in NYC and DC wonder why there is such visceral hatred of the government and the banks.
Thank you for this! I will read the full report with great interest.
I signed up for the program shortly after it was unveiled, made 8 years of payments, leaving (I thought) only two more until I would be eligible for the loan forgiveness. Whereupon the servicer informed me that I had to have at least half of all my payments under a new eligibility scheme based on income, ergo, I would have to accumulate another 8 years of payments, for a total of 16. By that time, the loan would be virtually paid off.
I note that the servicer, meanwhile, gets to collect juicy interest payments at a subsidized rate. So was this change of the terms a Federal Government decision or merely a way to keep me in hock despite the original agreement? I still don’t know but would LOVE to join a class-action suit over it.
“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 direct student loans.”
“direct student loans” = Federal Direct Loans (William D. Ford Federal Direct Loan Program)”
If the last sentence means “Federal Direct Loan” student loans, the way you have it written would not read that way. I know of only one Federal Direct Loan.
Sorry for the intrusion.
Thanks for the comment. You are correct– that was sloppy drafting on my part, which I’ve now corrected, to federal direct loans. Meant to write federal and typed student instead. My apologies for the error.
Jerri:
As Yves might tell you, I write on student loans also and Akers, Delisle, Chingos, etc the naysayers. One person to follow who is championing student loan relief and the right to bankruptcy is Allan Collinge of the Student Loan Justice Org. http://studentloanjustice.org/ . He is on facebook too.
It appears he is getting “some” congressional support on a bill allowing student loan bankruptcy. Any support you can give him, I am sure he would welcome.
I write at about Alan at Angry Bear and also come here to read at times. Thank you for your return.
Bill
Another thing I can add from my experience is that Federal Student Loans discriminate against students whose parents are divorced or where never married, and are “re-married” (for lack of better term). I fit this mold as my parents were never married and separated almost my whole life. When it came time to report for my loans (to the best of my understanding) all information was included, even though neither household could technically pay for my schooling. Because of this I was not offered any of the basic Pell grants etc… I have seen so many other students get. Then as an high marks, average white dude, I didn’t really ever find scholarships that applied to me (nor did I like the idea of beating out others who may need it just as bad as I, or worse. Reminds of the scenario where the mercenary army has room for one and you have to fight to the death with others for that spot).
My entire degree was financed with loans, the majority of which were offered not to me, but to my mother in the form of the Parent Plus Loan. This was something I never understood and still do not. Why is anyone else being brought into this? The amount of the standard loans I was given was not enough for any single term, so she had to take these out. (Luckily… I guess? She hit her 401k to pay these off later, but yeah, as thankful as I was, I never wanted her to have to do that).
This entire thing is one colossal cluster…bomb. I went to college on autopilot, after years of “this is what you do…”. I wish I wouldn’t have until later. Now that I know what might be good to go into, I can’t.
I would also like to add that, as it is a legal filing, divorce could look different than this. Though I would highly doubt it.
Or gladiators fighting each other for their lives instead of turning around and overthrowing their oppressor. Come to think of it, it’s good metaphor for capitalism in general.
If it is in the future, it isn’t real.
Rather than free credentialing, how about making the credentialing less necessary to begin with? Resurrect the apprenticeship/examination pathway as was done in the past. This is how one became a doctor, lawyer, engineer back in the day.
A lot would require tearing out root and branch The Stupid in corporate HR departments. So much of academic credential “requirements” for jobs are capricious and cynical, a way of reducing the number of resumes they need to review. Much of the rest is covering their butts, creating a process where little personal judgement or analysis of candidates is necessary or even possible, which under top-down, punitive corporate cultures has become a lot of risk for little reward. No-one wants to stick their neck out to hire the sharp person with a few community college credits when they can lazily pick from Ivy League grads.
Is this simply servicer incompetence, or is there a perverse incentive involved? As a servicer, they collect service fees. Once the student debt slave is released from bondage, those service fees would evaporate. Can’t have that. I can also imagine such agency issues occurring in the individual case manager. While I haven’t read it, I imagine the CFPB report ignores the demon of perverse incentives and views the problem as incompetence, the remedy, training. I hope Corday fully understands agency issues and takes efforts to address these as well.
Free college can never be a political possibility because older voters who paid for their educations would be miffed by it, unless tax incentives or penalties were somehow involved.
There is no such thing as free education. You will be in indentured servitude to some entity.
My College Education was free, and the only indentured servitude I have suffered is that of a job,
How are lecturers and other staff paid? Don’t want to be snarky here but someone is paying them. I might be free to YOU, but if it’s really “free” then these people aren’t getting paid.
I think nowadays, it’s the administrators, building contractors and groundskeepers that are getting paid.
At any rate, even if college were free, most people would never complete it. Coursera has extremely low completion rates, and those that do complete a course tend to be already highly-educated. Free degrees will signal uselessness and just raise the bar to expensive graduate degrees. Delaying adulthood further is not a societal solution compatible with human biology.
You have any hard data to back up that ridiculous slur on “older voters”? I am an “older voter” and I am 99% certain that every older person I know would support a move to free education. People do not become assholes simply because they grow old.
That number would likely be closer to 60% (what the polls say is the % of Americans who support free college). Your 99% is just as ridiculous an assertion as my original one was.
Not true. Jamie got you to correct your admittedly ridiculous assertion. +1 Jamie!
I’m closing in on 120 payments, and have 11 years at a job which checks-off-all-the-right-boxes,
BUT
made my repayments under Plan F33F.U instead of Plan WhateverTheFrack! No relief for you!
When I was 28 in ’88 and cooking in Boston, I voted FOR that Ivy’d puke-akis … I voted for Clinton & Gore & Kerry & Obama … and I got sold out. I voted for competence, and got Ivy scum sell outs. While I’d never vote fascist, how the hell can people wonder how the hell the Trumpsters win? People are fed up.