When Leigh McIlvaine first learned that her student loan debt could be forgiven, she was thrilled. In 2008, at age 27, she’d earned a master’s degree in urban and regional planning from the University of Minnesota. She’d accrued just under $70,000 in debt, though she wasn’t too worried—that’s what it took to invest in her future. But graduating at the height of the recession, she found that the kind of decent-paying public-sector job she’d anticipated pursuing was suddenly closed off by budget and hiring freezes. She landed a gig at a nonprofit in Washington, DC, earning a $46,000 salary. Still, she was happy to live on that amount if it was the cost of doing the work she believed in.
At the time, she paid about $350 each month to stay in a decrepit house with several roommates, more than $100 for utilities, and $60 for her cellphone bill. On top of that, her loan bill averaged about $850 per month. “Rent was hard enough to come up with,” she recalled. Then one day while researching her options, she read about something called the Public Service Loan Forgiveness (PSLF) plan. At the time, Congress had just come up with a couple of options for borrowers with federal loans. They could get on an income-based repayment plan and have their student loans expunged after 25 years. Or, for borrowers working public service jobs—as social workers, nurses, nonprofit employees—there was another possibility: They could have their debt forgiven after making 10 years’ worth of on-time payments.
The PSLF program, backed in the Senate by Ted Kennedy and signed into law by President George W. Bush in 2007, was the first of its kind, and when people talk about “student loan forgiveness,” they’re usually talking about PSLF. It was implemented to address low salaries in public service jobs, where costly degrees are the price of entry but wages often aren’t high enough to pay down debts. A Congressional Budget Office report last year found that public-sector workers with a professional degree or doctorate earn 24 percent less than they would in the private sector. In Massachusetts, a public defender in 2014 made just $40,000, only about $1,000 more than the court’s janitor. Meanwhile, 85 percent of public-interest attorneys in 2015 owed at least $50,000 in federal student loans, according to one study. More than half owed at least $100,000. According to a 2012 study, 65 percent of newly hired nonprofit workers had student debt, and 30 percent owed more than $50,000. In order to keep people working as public defenders, or rural doctors or human rights activists, something had to be done. PSLF was an attempt at a fix.
The program was by no means a handout. Successful PSLF participants, according to one estimate, pay back as much as 91 percent of their original loan amount, so enrollees primarily save on interest. The program’s appeal was that it offered a clear path for people who struggled to pay back loans, or struggled to envision how they would ever pay them off without abandoning public service jobs for higher-paid positions elsewhere. For McIlvaine, who dreamed of working to make cities more livable, PSLF was the only way she could imagine paying off her debt. When she sent in her first payment in the fall of 2009, she felt like she’d put herself on track to get to “a place where the debt would eventually be lifted.”
Several companies, including one called FedLoan Servicing, contracted with the Education Department to handle loan repayment, and until 2012, when the government assigned all PSLF accounts to FedLoan, borrowers had to keep track of their progress toward forgiveness. At the time she began paying into the program, McIlvaine wasn’t too perturbed that there was no official way to confirm her enrollment, no email or letter that said she had been “accepted.” She trusted the Education Department to run the program effectively and followed its parameters, taking care to send in the yearly tax forms that proved her eligibility and always submitting her payments on time.
Everything seemed fine for the first few years—McIlvaine initially made payments through an Education Department website, and then, as the department increasingly outsourced its loans, hers were transferred to a company called MOHELA. But once FedLoan took over, things quickly started to go awry. While FedLoan was sorting out the transfer, her loans were put into forbearance, an option usually reserved for people having difficulty making payments; during a forbearance, any progress toward forgiveness stalls, and loans balloon with interest. Then the company failed to put several of her loans on an income-based plan—so her payments briefly shot up, she says. And when McIlvaine submitted her tax information, she says FedLoan took months to process the paperwork—while she waited, the company again put her into what it called “administrative forbearance,” so none of the payments she made during this period counted either. (McIlvaine requested a forbearance at least once, after turning in late renewal paperwork.)
McIlvaine initially hoped these problems were just “hiccups,” but they kept piling up. And when she tried to figure out what was going on, she says, FedLoan’s call center “loan counselors” brushed the whole thing off as an inconsequential administrative oversight. Astonishingly, the cycle would repeat over the next four years.
Despite these frustrations, McIlvaine kept diligently sending in her checks. In January 2016, she took advantage of a new program introduced by President Barack Obama that helped lower her monthly bill, and when she did, her loans were again inexplicably put into forbearance. On top of that, four months later, as she was trying to save for her wedding, FedLoan sent her a bill for $1,600, more than $1,300 above her monthly payment amount. When she phoned the company in a panic, they told her the bill was an administrative glitch and said not to worry about it; they’d sort it out. Warily, she accepted—after all, there wasn’t much else she could do.
In August 2016, McIlvaine was offered a job at Mercy Corps, a nonprofit in Portland, Oregon, which came with a $10,000 raise and great benefits—the extra security she believed would allow her to start a family. But Mercy Corps required a credit check, and McIlvaine discovered that FedLoan had never actually dealt with that $1,600 bill, instead reporting it as 90 days past due and plunging her previously excellent credit score to an abysmal 550. When she called FedLoan in tears, she recalls, she was treated dismissively and told to “pay more attention” to her loans—and again the only option offered to her was to take an administrative forbearance while the company sorted out the issue. Ultimately she got the job, but only after she lodged a formal complaint with the Consumer Financial Protection Bureau, the watchdog agency created during the Obama era, which prompted FedLoan to send her a letter in October 2016 claiming the company had fixed the issue and that her credit had been restored. “But in true FedLoan Servicing style,” she told me, “they only contacted two of the three credit bureaus.” It took several more months to fix her score with the third bureau, Equifax.
If not for FedLoan’s errors and delays, McIlvaine estimates, her loans would be eligible for forgiveness as soon as 2020. But instead, in the nine years she’s been participating in PSLF, months of payments haven’t been counted toward her 10-year requirement, ultimately delaying the date of her forgiveness by at least a year. All the while, although she’s been making payments of between $300 and $450 a month, her total debt has not gone down. After nearly 100 payments, she still owes the entire amount she initially borrowed.
FedLoan declined to comment on McIlvaine’s tribulations. But as complaints to the Consumer Financial Protection Bureau and lawsuits against the Education Department and FedLoan pile up, she’s hardly alone. In 2017, the bureau issued a report excoriating FedLoan for mismanaging PSLF, misleading borrowers, and losing track of payments. The previous year, the American Bar Association had filed suit against the Education Department for reneging on its own rules about how the program was supposed to work and who was eligible for forgiveness. Then, in August 2017, Massachusetts Attorney General Maura Healey sued FedLoan on behalf of the state’s borrowers, alleging it had overcharged them and bilked them out of payments. And just this January, a set of borrowers filed a class-action suit against the company for repeatedly putting them into needless forbearances that delayed their forgiveness.
Now, the Trump administration has begun disassembling one of the only checks on companies like FedLoan, the Consumer Financial Protection Bureau, all while arguing that these companies are off-limits to state attorneys general like Healey—essentially trying to give them legal protection.
“We’ve seen an industry that’s really been given a pass by the DeVos administration,” Healey told me, referring to Trump’s education secretary. “That’s why you see Betsy DeVos clean house and bring into the Department of Ed lobbyists and executives from the for-profit schools industry, from the loan-servicing industry. They’re the ones who are attempting now to rewrite all the rules. And the rules and the policies of the department favor corporations and furthering the bottom line of executives at the expense of students.”
Meanwhile, in early June, Republican legislators were trying to find votes for a sweeping and massively unpopular higher-education bill called PROSPER that would get rid of many grant programs as well as loan subsidies and PSLF. Trump’s 2018 and 2019 budgets also proposed axing the PSLF program. Congress has so far rejected the idea, but if the efforts succeed they would remove what was a very small sliver of hope for a generation underwater.
October 2017 should have been a moment for celebration for those sunk by debt—it was the first time a cohort of PSLF participants, after 10 years of payments, could be forgiven. Yet of almost 900,000 people who have submitted at least one payment to the PSLF program and FedLoan since 2012, the Education Department expects fewer than 1,000 to be forgiven by the end of its fiscal year. The reasons for these astonishingly dismal statistics are myriad, but one fact is clear: A decade after McIlvaine and scores of others began paying into the program, many are only barely closer to their goal of being debt-free. And some are even more in debt than when they started.
Today, FedLoan services about a third of all federal student debt, and last year the company took home $195 million from the Education Department. But for years, there were reasons to doubt the company’s competency to administer such a large portion of the government’s loan portfolio.
To understand how FedLoan grew so powerful, you have to go back to the 1960s. At the time, about a quarter of high school students dropped out, while half of those who did graduate went on to college. To boost those numbers, President Lyndon B. Johnson signed the Higher Education Act in 1965. The bill came along at a moment when states were creating their own institutions to promote higher-education access, including the Pennsylvania Higher Education Assistance Agency (PHEAA), which would eventually branch off and create FedLoan. It was a recipe that we still rely on today—the federal government provides loans to students across the country, and state governments and other agencies like PHEAA fill in the funding gaps. “When you look into the faces of your students and your children and your grandchildren,” Johnson said, “tell them that the leadership of your country believes it is the obligation of your nation to provide and permit and assist every child born in these borders to receive all the education that he can take.”
But Johnson’s student aid program immediately fell short of his lofty aims. Over the next four decades, it shifted from a model relying on tax dollars to provide a public good into a loan-centered system that viewed education as a “private responsibility and risk”—and student borrowers as sources of profit, says Deanne Loonin, an author and attorney at the Legal Services Center of Harvard Law School.
Johnson had wanted to create a national scholarship fund for students—like a universal GI Bill—but Congress told him it would be too expensive. So he struck a compromise with Republicans: He would supplement federal funds with loans doled out by private banks, which in turn would receive subsidies from the government, ensuring they would get their money back if a borrower skipped out on the debt. To shore up its insurance program, the feds partnered with dozens of nonprofits and state agencies, including PHEAA. The government would pay out 1 percent of each loan an agency managed. And if borrowers did stop paying, PHEAA and the other institutions would reimburse the lending bank and then act as collection agencies—pocketing collection fees to the tune of 16 cents on the dollar.
Meanwhile, as demand for higher education grew, so did college costs, while incomes didn’t keep pace. So in 1972, President Richard Nixon did two things: He expanded a federally funded grant program for low-income students, which became known as the Pell Grant, and he created an entity called Sallie Mae that used Treasury funds to buy up student loans from banks.
By the early 1990s, the issue of student debt was already notable enough for Bill Clinton to campaign on it. His vision was to allow students to pay back their loans by doing national service. But Republican pushback forced Clinton to settle for expanding a George H.W. Bush pilot program called Federal Direct Loan Demonstration, better known as Direct Loans, which allowed the government to make loans to students, cutting out the costly middlemen—the banks and guarantee agencies like PHEAA. Direct Loan borrowers were allowed to base their payments on their incomes, and to have their debts forgiven after 25 years. Eventually, Clinton planned, every new student loan would be a Direct Loan.
This proved to be a consequential moment for the American student debt crisis. Around this time, some guarantee agencies, perhaps panicked about their cash flow drying up if Clinton’s plan succeeded, took on what Bob Shireman, a major figure in the campaign for Direct Loans, calls “a business venture mentality.” The biggest player was Sallie Mae: By the time it became independent of the federal government in 2004, it was making profits of almost $2 billion a year, selling loans in bundles on Wall Street, and giving out private loans outside the federal system at rates of more than 20 percent in some cases. It was also gobbling up state loan agencies. In 2004, Sallie Mae even made an aggressive but unsuccessful bid to buy PHEAA.
More than a decade after their creation, Direct Loans still only made up 25 percent of all student loans. Meanwhile, the Pell Grant was losing value. And as states reduced investments in higher education, hitting a 25-year nadir in 2011, public colleges covered the difference by raising tuitions.
As a result, by the early years of the 21st century, many millions more young people were heading to college—the realization of LBJ’s dream—but they were taking on monumental yokes of debt. Outrage over student loan debt powered Sen. Bernie Sanders’ upstart campaign for president. And the reason the issue so motivated young people wasn’t hard to understand: For the 2017-18 school year, according to the College Board, students at public universities were charged an average of about $21,000 for tuition, room, and board—more than twice the cost, adjusted for inflation, that they had paid three decades earlier. At private schools, those fees totaled almost $47,000, versus about $22,500 in 1987. In 2015, more than two-thirds of college graduates had loan debt—$30,100 on average. Nearly a quarter of borrowers with postgraduate degrees owed more than $100,000. And according to Student Debt Crisis, a borrower advocacy organization, this year the total amount of outstanding student loan debt topped $1.5 trillion.
Add to the equation decades of widening income inequality and wage stagnation—for young college graduates, wages fell overall between 2000 and 2012—and you have a situation ripe for lenders to pull in enormous profits from students who, to compete, have had to saddle themselves with debt to get a decent-paying job.
The Public Service Loan Forgiveness program was intended to alleviate some of these pains. “Yes, we know the cost of education has gone up,” said Ted Kennedy on the Senate floor in 2007. “Help is on its way.”
Source: motherjones
Author: Ryann Liebenthal
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