In October, I wrote a column about Jed Shafer, a teacher in Oregon who found himself on the wrong end of the student loan repayment bureaucracy.
Mr. Shafer thought he was following the rules to qualify for the public service loan forgiveness program, and spent years communicating carefully with the loan servicers who collected his payments on behalf of the federal government. But it turns out he hadn’t been doing it correctly after all.
The result? He learned he was going to have to pay tens of thousands of dollars extra. After many months of pleading his case to his loan servicer and the Department of Education, he’d pretty much given up.
“They have the power, regardless of my service and full payments, to make me look inept,” he told me then. “They will surely win based on their documentation.”
Well, they didn’t win. Mr. Shafer recently received official word that seven years of payments that he was told would not count toward his loan forgiveness — he needed 10 years — would count after all. Moreover, the $1.3 trillion spending plan that Congress passed last week contains a $350 million forgiveness fix-it fund to help some others like him.
While both developments are overwhelmingly positive, very little about the public service loan forgiveness plan is straightforward. We’re still months away from knowing the details of how the $350 million fund will work. And if you think you’re repaying your debt correctly under the many terms of the program, there’s a decent chance you’re not.
The federal loan program allows people working full-time for qualified employers (generally government workers and those who work for nonprofits) to apply for tax-free federal student loan forgiveness after ten years of on-time payments. There are a couple more catches, though: You have to be in the right kind of loan (a so-called direct loan from the government) and making the right kind of payment (generally an income-based or income-driven one of some sort). I explained this in more detail in a column last year, which contains many links to more resources and instructions.
About a week after my column on Mr. Shafer appeared, he heard from an Education Department staff member who offered to review his file in more detail. After several exchanges, he received official notice earlier this month that he now has 97 months of credit toward the 120 months he would need for forgiveness. That’s 84 more than he had previously.
Around the same time, the loan problem was being taken up by others in Washington. Senator Elizabeth Warren, Democrat of Massachusetts, a proponent of loan forgiveness for public service workers going back to her days as a Harvard Law School professor, told me last week that she began asking around after reading about Mr. Shafer. The program had begun in 2007, so by last fall at least some people should have been close to having their debt wiped away.
Instead, she found that constituent teachers and firefighters were having a hard time navigating the rules and receiving proper credit for their payments. “It was about finding out that the problem was bigger than anyone thought, but also trying to figure out what to do,” she said in a phone interview. “It was a lot of headbanging.”
By mid-November, two other Democratic senators, Tim Kaine and Sheldon Whitehouse, had introduced a bill aimed at fixing the problem, one they had been working on before my column ran. A handful of legislators on the House side, including two Republicans, introduced their own legislation around the same time.
At the time, the prospects for any new law were uncertain, given that President Trump and other Republicans have been trying to get rid of public service loan forgiveness altogether for new borrowers. But then came a break: A series of compromises around budget and appropriations measures that led to the creation of the $350 million forgiveness fund.
Here’s how it is supposed to work. First, you have to have made the full 120 payments before you can get in line for the money. Once you apply for forgiveness, if you discover that some of your payments did not in fact count, you may be able to get retroactive credit for them.
Who will get credit? You won’t get it if you have a Perkins loan or what’s known as a FFEL loan (the acronym stands for Federal Family and Education Loan), since people in those loans are not eligible for the money. Ask your current loan servicer what kind of loan you have if you’re not sure and then double-check by logging into the Department of Education loan website.
And what if you find that you are not in the income-driven or income-based repayment plan that you are supposed to be in? If you discover, for instance, that you’re in a graduated or extended repayment plan in which your payments are not being credited toward forgiveness?
In that case, your most recent monthly payment, and your payment a year before you apply to have your remaining debt canceled, generally have to have been more than what you would have paid had you been enrolled in a qualifying plan. How do you figure that out with certainty? The Education Department has not explained that yet, but it does already have a repayment calculator that may help you make an estimate.
Finally, that $350 million fund is finite. While it seems like a lot of money, if 7,000 eligible people with an average debt load of $50,000 get in line for it, it will be gone — unless Congress allocates more money or makes a permanent fix. And the line cannot form until the Education Department explains how it will administer the fix-it fund. It is supposed to do so by late May, though federal agencies do miss such deadlines sometimes.
And what if you’re in Mr. Shafer’s shoes, where you’re short of 120 payments when you suddenly figure out that you are not in the right loan or repayment plan, even though you were adamant about your desire to qualify for the forgiveness program? Do what he did. Complain to the ombudsman at the Department of Education, especially if, like him, you dealt with a particularly problematic servicer called ACS several years ago.
Also, contact your representative in the House and your two senators and ask to speak with someone in constituent services. Many of the people in those jobs are young and in debt themselves and have contacts with the Department of Education that can be useful. The Senate staffers I spoke to this week echoed this; louder volume can yield more action or at least inject a greater sense of urgency.
As for Mr. Shafer, he’s just beginning to allow himself to imagine what he will do with the extra money once his loan payments end in 2020. “What would anyone do in their hometown if they had an extra $500 a month?” he said. “They’d buy furniture in local stores, hire local contractors, buy cars in local car lots.”
He also expressed some trepidation. In the last two weeks, his loan servicer has sent him inaccurate information about his current payment and about his overall number of payments toward forgiveness. That has him imagining himself back on the negative side of the forgiveness equation. “I would like to be an example of what fighting back can do, and I would not like to be an example of what fighting back can do,” he said, chuckling.
Ms. Warren said she was disappointed with the fact that a more permanent or expansive fix for this problem was not politically possible this time around, and vowed to keep watch.
“I certainly intend to keep an eye on Secretary DeVos,” she said, referring to Education Secretary Betsy DeVos. “The fight isn’t over until every single nurse, teacher, police officer and firefighter gets the student loan forgiveness that they earned.”