Last week, the Student Loan Ranger heard from a lot of panicked student loan borrowers who had read about a lawsuit that several borrowers and the American Bar Association filed against the Department of Education. These individuals had submitted employment verification certificates under the Public Service Loan Forgiveness program and were initially told that their employers, including the ABA, were considered eligible under the program.
Unfortunately, upon the Department of Education’s further review, their eligibility approval was rescinded, meaning that eligible payments they made while working for these employers would no longer count toward the 120 they needed to obtain forgiveness under the PSLF program.
While unfortunate for these four borrowers, other borrowers pursuing public service loan forgiveness probably don’t have much to worry about. If you are a little confused at this point, here’s a quick refresher.
Eligible employers for the purposes of the program include 501(c)(3) nonprofit organizations; government employers, including state, federal, local and tribal; and other nonprofits that provide certain public services.
Those public services must be in emergency management; military service; public safety; law enforcement; public interest law services; early childhood education, including licensed or regulated child care, Head Start and state-funded pre-kindergarten; public service for individuals with disabilities and the elderly; public health, including nurses, nurse practitioners, nurses in a clinical setting and full-time professionals engaged in health care practitioner occupations and health care support occupations; public education; public library services; and school library or other school-based services.
Here’s where the issue comes into play with the plaintiffs in this case. While 501(c)(3) organizations are eligible regardless of what they do, other nonprofits, such as the ABA, have to be seen as providing one of the services listed above. Public interest law is explicitly defined in the PSLF regulations as “… legal services provided by an organization that is funded in whole or in part by a local, state, federal, or tribal government.”
Since we are not attorneys and don’t know how the ABA is funded, we aren’t going to give our opinion on whether the ABA meets that definition. However, it’s clear that the Department of Education does not believe that it does.
So in short, it’s not that the federal government is changing the rules for public service loan forgiveness – it’s that in this isolated situation, an error was made when the Department of Education initially reviewed these individuals’ employment.
Why don’t most borrowers pursuing public service loan forgiveness need to worry? Most individuals who apply for public service loan forgiveness will be doing so after being employed for 501(c)(3) or government employers. Those employers are eligible.
The extra scrutiny doesn’t come into play unless you are working for a non-501(c)(3)-designated nonprofit, at which point the Department of Education needs to determine whether that employer provides one of the previously listed eligible services.
The only other category of borrower who may want to confirm their eligibility are those who work for an eligible employer as defined above but are paid by an employer that isn’t eligible. These tend to be government contractors and may not be eligible for PSLF. Regardless of the work you do, if you aren’t paid by an eligible employer, you can’t participate in PSLF.
If you aren’t sure, submit your employment verification form – it’s a good idea to do this annually – to confirm. Although the individuals involved in the lawsuit may have done this each year, we are confident that this is an isolated case and that the vast majority of public service loan forgiveness approvals will remain approved.
It bears repeating that the public service loan forgiveness rules have not changed. In fact, to do so would require congressional action or a Department of Education full negotiated rulemaking session. This process takes more than a year, so you would have a long warning if this were even a possibility.
Finally, as a last assurance, based on our extensive experience with student loans, we’ve never seen the rules for student loans change retroactively. Even if the rules change or the forgiveness plan is discontinued, we feel confident that this would not affect borrowers already pursuing public service loan forgiveness.