Loan Forgiveness Shift Could Worsen Debt for Public Service Workers
Before the 2016 presidential election, there was concern that changes in the administration could lead to changes in the Public Service Loan Forgiveness program that would be problematic for the nearly half a million people enrolled. But even then, it seemed the program was on solid enough ground to keep those enrolled financially secure.
That all changed in early August. The U.S. Department of Education filed a legal motion that could remove the debt forgiveness scheduled to begin this fall for public service workers who gave up potentially higher paying positions in the private sector with the promise that their debt would be forgiven.
Loan forgiveness and financial risk
One of the greatest benefits for students with steep loans was the ability to move forward and help others without having to worry. According to Stacy Watts, adult programs manager at College Now Greater Cleveland, “It has helped many students not worry about paying their loans by being on one of the income driven repayment plans. These plans help students pay a smaller monthly amount that they can handle with their budget and not worry about their loans going into default.”
The motion makes it appear as though the Department of Education is pulling back from the Public Service Loan Forgiveness program. Instead of the security that those working in public service fields once had, they are now worried if it was all for nothing.
The wording of the motion indicates that it isn’t until after 10 years of repayment in accordance with the program that individual applications will be approved or denied.
Some of those that had filled out the employment certification forms previously and had received qualification forms for their jobs have been informed that this was only a preliminary determination and did not offer a guarantee that their debts would be forgiven in full at the end of the 10 years of repayment.
Many individuals planned their futures and made major life decisions such as where to live, when to get married, and how to invest their money based on the promise of the program. They paid lower payments, in alignment with the guidelines, and have incurred higher interest debt in addition to the original loan amount. If they are now denied the loan forgiveness they have worked a decade to achieve, many will face financial insecurity.
The legal representation for the Department of Education have been quoted as saying it is “unfortunate” that borrowers relied on the initial determination, but regardless of their subsequent decisions and financial planning, the initial response to the ECF forms were not legally binding.
The future of public service education
It is possible a change in policy has the potential to negatively impact how many students enroll in majors better suited for work in public service.
Some of the most common degree programs are in fields that most desperately need highly qualified individuals: public education, public health, law enforcement, military service, public libraries, some public interest law services, and emergency management. These are all fields that offer less financial security for those who pursue them, and many students are not willing to risk their financial futures on a career that may result in an inability to repay for their college tuition.
However, Robert Farrington, student loan expert and founder of The College Investor, thinks the schools have less to worry about than the individual students. He explained by saying, “While the universities might be impacted, there isn’t much incentive for them to change anything. Whether there is forgiveness or not doesn’t factor too high in decision making for colleges.”
If colleges are unable to provide additional incentives to promote the financial feasibility of these degree programs and the loan forgiveness option becomes less stable, it is possible that these sectors will again face workforce shortages.
It was clear by the end of 2016 that the Public Service Loan Program was going to face changes. It had grown far beyond the initial financial scope. There was discussion of caps being installed on the amount that could be forgiven and a greater degree of structure within the program itself. No one expected those who were due to have their loans forgiven in 2017 would be faced with the possibility of having that taken away entirely.
In the meantime, hundreds of thousands of public service employees await the conclusion of the court proceedings and additional information from the Department of Education.
One option that many might consider should loan forgiveness not be available is refinancing their student loans.