Education Dept. Prepares To Renege On 10 Year Old Promise To Student Borrowers

I think we’ve all gotten used to businesses reneging on their pension commitments to retired workers, promises that were made decades ago to keep wages down in exchange for a more comfortable retirement. And that propensity for defaulting on past promises has begun to bleed over to the states, with Puerto Rico’s teachers’ pension plan being an extreme example. But it is hard to believe that the federal government is now reneging on a promise made to college graduates a mere decade after those promises were made and after years of compliance by those seeking the federal benefit.

The story revolves around a federal program that promised to pay off student loans if the participants worked in a public service job for 10 years. The program called FedLoan would certify that the public service organizations these recent graduates were working in qualified for the federal benefit. The program encouraged, but did not require, participants to re-certify their organization every year. According to the NY Times report on this scandal, “The program generally covers people with federal student loans who work for 10 years at a government or nonprofit organization, a diverse group that includes public school employees, museum workers, doctors at public hospitals and firefighters.” The program began in 2007 as part of a bipartisan bill focused on student loans and education financing.

Some years into the program, participants discovered that the public service work they were doing no longer qualified for the program. One example was a man who was working at the non-profit Vietnam Veterans of America. He did annually re-certify but in 2012 he was suddenly told that he no longer qualified, even though he was working for the same organization that had been previously certified. Worse, he was told that the decision was retroactive.

What became clear from examples like this is that the FedLoan program may have certified the organization involved but the final decision actually rested with the Education Department. According to the Education Department, a FedLoan letter “does not reflect a final agency action on the borrower’s qualifications. As the Times notes, “The idea that approvals can be reversed at any time, with no explanation, is chilling for borrowers.” Needles to say, the American Bar Association is suing, claiming the Education Department is acting “arbitrarily and capriciously” in its determinations of who qualifies for the FedLoan program.

What’s truly frightening is that there are hundreds of thousands of people enrolled in the FedLoan program and a large majority of them have never sought annual re-certification for the organizations they work in. October of this year is when the first of these participants will complete their 10 year commitment, thinking that the remainder of their student loans would be forgiven. Many of them may find out that the Education Department has ruled that they do not qualify and still owe thousands of dollars. Of course, many of those borrowers might have switched out of the nom-profit sector into higher paying jobs if they had known they were no longer eligible. Expect the lawsuits over this issue to balloon. This fall might present some interesting times for Betsy Devos.