In Lawsuit, Teachers Accuse Education Department of Botching Public-Service Loans

Saul Loeb, AFP, Getty Images

The American Federation of Teachers accused the Education Department and its secretary, Betsy DeVos, of “gross mismanagement” of a loan-forgiveness program, in a lawsuit filed on Thursday in federal court.

The Public Service Loan Forgiveness program, meant to encourage people to pursue careers in the public interest, has come under scrutiny for a rocky rollout. Thousands of people expecting relief on their student loans have remained stuck with high balances.

Eight of those people joined the lawsuit. One is Connie Wakefield, a schoolteacher in Michigan who applied for relief in October 2017, after making 120 on-time payments on her loans, according to the complaint. Her servicer told her she was eligible for relief, but the Education Department has rejected her over and over, the complaint says.

The complaint alleges that blunders by the department and its mismanagement of student-loan servicers violate federal law and borrowers’ due-process rights.

The lawsuit asks the U.S. District Court for the District of Columbia to compel the department to overhaul its loan procedures and better explain its decision making. The plaintiffs also seek forgiveness of their loans.

Congress enacted the Public Service Loan Forgiveness program in 2007 in hopes of relieving financial burdens and giving people incentives to pursue jobs like teaching, firefighting, public defense, and nursing. Under the program, if they made regular loan payments for 10 years, the rest of their balance would be forgiven.

Uncertainty over who would get relief grew as the 10-year mark arrived, in the fall of 2017. By 2016 the department estimated that the first five years of forgiveness would wipe out $6.3 billion of debt for 331,000 borrowers.

About 73,500 people have applied thus far. But just 518 of them — less than 1 percent — have been granted relief totaling $30.7 million, according to department data.

That small payout is a result of a tangle of complex requirements, as well as alleged mismanagement by the department and the loan servicers it oversees, according to the complaint, which was first obtained by NPR.

Under the program, borrowers must make 120 monthly payments through a repayment plan while working in a qualifying job. The complaint alleges that the department has miscounted payments, and that loan servicers have misled borrowers about what kinds of loans were eligible.

Many Warnings

Other government agencies have issued warnings about the program in recent years.

The Consumer Financial Protection Bureau in 2017 released a report flagging complaints from borrowers about the practices of loan servicers that “delay, defer, or deny access to critical consumer protections.” At the time, the bureau estimated that at least 32 million borrowers were repaying loans that could be eligible for public-service loan forgiveness.

A report released last year by the Government Accountability Office found that more than one million borrowers had taken steps to certify their eligibility for the program, but just dozens had had their debt discharged. The agency said the department had failed to provide “key information” about the program, “creating uncertainty for borrowers and raising the risk some may be improperly granted or denied loan forgiveness.”

The Education Department’s own watchdog office found this past spring that the department had failed to oversee the servicers processing student loans.

To give frustrated applicants a second chance, Congress last year made $700 million in additional relief available under a program called Temporary Expanded Public Service Loan Forgiveness. But it has suffered from similarly low approvals, for which the complaint blames the Education Department.

“Instead of helping the millions of Americans owed debt relief under the Public Service Loan Forgiveness program, DeVos has hurt and pauperized them,” Randi Weingarten, president of the American Federation of Teachers, said in a written statement.

The department blames low approvals on the program’s complex requirements. The Trump administration proposed eliminating the program entirely in its 2020 budget plan. It later said Congress should instead forgive all undergraduate loans after 180 months of income-driven repayment.

“The department does not comment on pending litigation, but I would point out that the department is faithfully administering the complex program Congress passed,” said Liz Hill, the department’s press secretary, in an emailed statement.

Navient, one of the loan servicers named in the suit, declined to comment but told NPR that “we understand the frustration borrowers face in navigating a complex federal loan program, which is why we consistently advocate for policy reforms to simplify the system.”

Read the full complaint here:

Follow Steven Johnson on Twitter at @stetyjohn, or email him at steve.johnson@chronicle.com.