Federal Student Loan Forgiveness in Doubt

While higher education in America has been a path to a better way of life, it has now often left millennials saddled with debt. Two-thirds of students graduating from institutes of higher leave with debt. Those who have graduated during the last decade who borrowed left school with $34,000 in student loans on average. That’s an increase of $20,000 from the decade before, according to data from the Federal Reserve Bank of New York. More alarming is that ten percent of graduates accumulate more than $40,000 in debt, and a small portion (1%), leave with debt of $100,000 or more.

One solution to the problem was instituted by the Public Service Loan Forgiveness (PSLF) program created under the College Cost Reduction and Access Act of 2007. Anyone who has a federal loan and is employed by a qualifying public or non-profit organization, can have their load forgiven after ten years of on-time payments. However, a new legal filing by the Education Department last week calls into question the future of the program.

The first loans forgiven were schedule to begin in 2017. But in a recent court filing, the Department of Education signaled that application of the program may be limited. The Department filed legal briefs arguing that letters certifying people for this program were not legally binding if borrowers did not meet the legal criteria of the program. The issue arose in regards to four attorneys who worked for trade associations that were not 501(c)(3) nonprofit charities as required by the PSLF. The government response was to a lawsuit filed by the four attorneys who had student loans arguing that they shouldn’t be denied debt forgiveness after they’d been told that they were going to be in the program.

While the lawsuit is limited in scope, the Department’s position has raised concerns over the future of the program. Some estimates indicate that 25% of the federal workforce may be eligible for this program. The Obama administration made the PSLF significantly more generous in 2010, 2012 and 2015. But now some public policy think tanks are calling for abolishing the program all together.

April 28, 2017

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