A Year Before Public-Service Loan Forgiveness Kicks In, Uncertainty Looms

In 2007, Jocelyn Getgen Kestenbaum graduated with a law degree from Cornell University, a master’s in public health from the Johns Hopkins University, and about $145,000 in student-loan debt from those programs and her undergraduate studies. A former Peace Corps volunteer, Ms. Kestenbaum had developed her own dual-degree plan and knew she wanted to be a public-interest lawyer. So when she heard about a new program that would erase the federal loans — the bulk of her debt — of graduates who worked in public service for 10 years, she immediately looked into it.

The program, called Public Service Loan Forgiveness, or PSLF, had been passed by Congress and signed that year by President George W. Bush. Its goal was to use the carrot of loan forgiveness to steer graduates toward careers in the public interest — to be public defenders, teachers, and the like. Next October borrowers like Ms. Kestenbaum who learned of the program early on can be among the first batch to apply to have their loans forgiven.

But as that deadline approaches, neither government officials nor borrowers know exactly what to expect.

Some borrowers look to the program with cautious excitement, unsure of how the process of requesting loan forgiveness will work or, in some cases, whether they will even qualify. Meanwhile, the government has only a rough estimate of how many people will earn forgiveness — or what the total price tag will be. In recent years, a few analysts have sounded an alarm about the potential cost of the program, arguing that it defines “public service” too broadly and places no limit on how much debt a borrower can have written off. (Even some proponents of the program suggest capping the amount of debt that can be wiped away.)

The Education Department estimates that 331,000 borrowers will receive PSLF through 2022, in the first five years of the program, with a total of $6.3 billion in debt forgiven.

There’s a path to make changes in Public Service Loan Forgiveness. Congress could do so in its next session as part of a reauthorization of the Higher Education Act, or through another legislative process. But that highlights one of the oddities of PSLF: It’s a long-term program with an unclear future. In a document explaining the program, the U.S. Department of Education says it “cannot make any guarantees about the future availability of PSLF” because a program created by Congress could be changed or ended by it. And it remains unclear what view President-elect Donald J. Trump has of the loan-forgiveness program, and what actions he may take.

That uncertainty can’t be comforting to borrowers hoping to take advantage of the program. For some, PSLF is a perk for doing work they would have done anyway. For others, it’s a compelling reason to stay in a low-paying job. As a mother of two, “I have other people dependent upon me,” said Ms. Kestenbaum, who is now a visiting clinical professor of law working in the Human Rights and Atrocity Prevention Clinic at Yeshiva University’s Benjamin N. Cardozo School of Law. “I can’t work for free, or for very little money,” she said, “without the idea that if I invest this time now, and forgo the salary now, that there would be some sort of reward at the end of it.”

Bracing for a ‘Big Jump’

To qualify for the program, borrowers must make 120 on-time monthly payments on their federal student loans while working full time in a qualifying public-service job. Government organizations, tax-exempt nonprofit groups, AmeriCorps, the Peace Corps, and other public-service-oriented nonprofits qualify. Eligibility extends to virtually every employee at those organizations, including receptionists, analysts, and communications staff members.

Borrowers in standard or income-driven repayment plans can seek public-service loan forgiveness, but the program really makes sense only with the income-driven plans. In income-driven plans, borrowers put 10 to 20 percent of their discretionary income toward repaying their loans. After 20 or 25 years, any outstanding debt is forgiven. Borrowers who are also in PSLF qualify for forgiveness more quickly. In standard repayment, loans are paid off mortgage-style over 10 years, leaving no balance to forgive under PSLF. Only payments made after October 1, 2007, count toward the total number of required payments.

No one knows for sure how much debt will be forgiven through the Public Service Loan Forgiveness program. For now, the best guess at its scale comes from a voluntary certification process that the Education Department began in 2012. Borrowers who send in an employment-certification form can receive confirmation that their employers and loans qualify, and they’re encouraged by the department to do so annually, or with every change in employer. At the end of September 2016, the department had approved 719,000 forms from 494,000 borrowers, according to Education Department data. But because the submission is not mandatory, it’s unclear how good of a gauge it is.

“You can hold onto everything and wait until October of 2017 and just bring it forward at that point,” said Melissa Emrey-Arras, director of education, work-force, and income-security issues at the U.S. Government Accountability Office. “It will be interesting to see what happens once that start date rolls around, to see if there’s a big jump — or not — in the numbers.”

A “big jump” in applicants is part of what worries critics. Jason Delisle, a resident fellow at the American Enterprise Institute, has raised questions about the program for years, and a September 2016 report he wrote referred to a coming “bonanza” of loan forgiveness. Mr. Delisle cites a 2015 report from the Government Accountability Office that suggests one in four American workers meet the program’s definition of a “public service” employee. Because there’s no limit to how much money a borrower can have forgiven under the program, he said, taxpayers could find themselves responsible for a considerable amount of student debt.

Nearly 30 percent of people planning to take advantage of the program have borrowed more than $100,000, according to Mr. Delisle’s report. Those high-debt borrowers tend to hold graduate degrees, and include doctors and lawyers. Unlike undergraduates, graduate students can borrow up to the total cost of attendance minus other aid. Without a cap on loan forgiveness in place, Mr. Delisle said, students feel less pressure to limit their borrowing, and graduate programs have little incentive to hold down their prices. In the future, he said, there “will be a steady ‘drip drip’ of data points that remind people this is much bigger and much broader than most people understand or intended.”

Education Department data show that only 139 borrowers who have submitted forms will be eligible to have their loans forgiven in the next year or two. The number, or course, may increase as borrowers come out of the woodwork to apply for forgiveness. But many analysts, including Mr. Delisle, expect that the program will remain relatively small for the first few years, so the 2022 estimate from the Education Department could significantly increase in subsequent years.

Isaac Bowers agrees. Mr. Bowers is a friend of Ms. Kestenbaum and the director of law-school engagement and advocacy at Equal Justice Works, a nonprofit that supports public-interest lawyers. To earn forgiveness in 2017, he said, borrowers would have had to be aware of the “obscure law” as soon as it was enacted, or happened to already be doing everything correctly: right employer, right loans, right repayment plan.

Confusing Criteria

Ms. Kestenbaum thought that she was one of those people. She heard about the program shortly after it was created, but it took a few months to gather her paperwork and consolidate her loans. Ms. Kestenbaum has spent nearly 10 years since then working at nonprofits or educational institutions, she said, and expected to earn forgiveness in December 2017. She and her husband have been banking on it.

If the forgiveness program didn’t work out, she said in an interview in October, “that would really just totally impact the way that we think about our finances, and the way that we plan for our future and our kids’ future.”

That night, Ms. Kestenbaum sat down with Mr. Bowers to go over her finances again. She discovered that she won’t be eligible until 2019. As it turns out, Ms. Kestenbaum had taken out Federal Family Education Loans, a type that is not eligible for the Public Service Loan Forgiveness program. She consolidated those loans shortly after finishing law school, but the consolidated loan still did not qualify. It wasn’t until 2009 that Ms. Kestenbaum reconsolidated her loans into a program that is eligible for forgiveness. Her 10-year countdown began then.

Ms. Kestenbaum said that the error was her fault, but she’s still disappointed. It means that for two additional years, she’ll put about $800 a month toward federal loan repayment rather than using that money to buy a car or make some other investment.

Ms. Kestenbaum’s experience demonstrates a chief critique of the program: that even for those willing to put in the effort to figure it out, it can be confusing.

The confusion is illustrated by the voluntary certification forms the department has received. According to Education Department data, 33 percent of the forms processed by the beginning of October 2016 were denied. Sometimes they were denied because of incorrect markings on the form, like a missing employment date or signature. Other times, though, applicants were rejected because their employers or their loans were not eligible.

A department spokesman said in an email that it’s the department’s impression that the most commonly rejected loans are Federal Family Education Loans, the kind Ms. Kestenbaum had until 2009. When the department receives forms from such borrowers, a contractor sends a denial letter along with a reminder that Federal Family Education Loans can often be consolidated into an eligible form, the spokesman said.

<p>Claire Crowley, a student-loan lawyer, said that what makes the program complicated are the many criteria borrowers must keep track of. Do they have the right loans, taken out at the right time? Do they have an eligible employer? The right repayment plan? The right amount of qualifying payments?

Others say the process of submitting the certification form itself, though, is fairly straightforward. It’s a lot “more difficult to explain than it is to actually apply for it,” said Melanie Mulder, coordinator of the financial-aid office at Ferris State University. The Education Department has made efforts to simplify the income-driven repayment processes, which ought to benefit seekers of public-service loan forgiveness.

Ms. Kestenbaum said she had received emails from the Education Department contractor handling her loans, prompting her to submit information and reminding her of deadlines. That’s a far cry from when she was researching the Public Service Loan Forgiveness program on her own in 2007, and printing out documents to mail in because not everything was yet online.

After the first wave of loans become eligible for forgiveness, in October, some of the uncertainty around the program will dissipate. But another question will remain: Has the program succeeded in encouraging graduates to work in the public sector?

Ms. Mulder, the financial-aid coordinator, said PSLF doesn’t have a major impact on the career choices of graduates she works with. “Most of them already have that calling in mind when they come to school,” she said, “and this is just a benefit.” In fields like law, though, proponents of the program argue that loan forgiveness is a potent motivator.

Without the reprieve that PSLF offers, the financial strain of repaying loans could force law-school graduates to leave the public sector just as they start becoming experienced, said Radhika Singh Miller, director of the National Legal Aid and Defender Association’s Civil Legal Aid Initiative. “When it comes time to actually make decisions about whether you can afford to have a family, or you can afford to even buy a car, let alone a house, you have to choose between serving the public or going into the private sector,” where salaries are higher, she said.

Loan forgiveness is still three years away for Ms. Kestenbaum. But knowing it’s coming, she said, has alleviated some of the “burden” she took on by choosing public-interest law. She stands to have approximately $130,000 forgiven under the program in late 2019.

“You always have the fear that maybe the program isn’t what they’re purporting it to be, or there’s some fine print that I’m not seeing,” Ms. Kestenbaum said. “There’s always that worry. But I hope that that’s not the case.”

Dan Bauman contributed to this article.