The Education Department’s ‘Expanded’ Loan-Forgiveness Program for Public Service Has the Same Rejection Rate as Before: 99 Percent

Chronicle photo by Julia Schmalz

More than a year after Congress tried to fix the problem, the Education Department still rejects almost all applications for public-service loan forgiveness, the U.S. Government Accountability Office has found.

The GAO report, released on Thursday, faults the department for rejecting 99 percent of applications under a new, more-inclusive program that was supposed to finally bring relief to borrowers.

Congress got involved because of numerous complaints from participants in the original program. They had spent 10 years faithfully sending in their loan payments, while choosing public-service careers such as teaching in the local school district, or working at a nonprofit.

Then they were blindsided with rejection letters from the Education Department because, it turned out, they had used the wrong repayment plan, or had borrowed the wrong type of loan, or had worked at an employer that unexpectedly didn’t qualify.

For example, borrowers needed to make payments using either the 10-year standard plan or an income-driven plan.

And so last year, Congress created a new version of the program. Soon after, the data for the original program showed a stunning 99-percent rejection rate. The numbers seemed to confirm that Congress had done the right thing by getting involved.

Yet the new program, the GAO report shows, has the same rejection rate.

The new version, called Temporary Expanded Public Service Loan Forgiveness, provides loan forgiveness to borrowers in a wider array of payment plans. It’s a change that should have, in theory, helped lots of people.

Congress allocated $700 million in funding for the temporary program. But since the Education Department has rejected almost everyone who applied, only $26.9 million in loan forgiveness has been granted.

“I don’t know who to blame more — Congress, or the Department of Education, or the loan servicers,” said Adam S. Minsky, a Boston lawyer who specializes in student-loan issues. “It should have been very straightforward.”

Congress tried to fix a program that was too complicated, but the new and improved version is “equally complex,” Minsky said. He blamed the Education Department for doing a poor job of explaining the details to borrowers through loan-servicing companies.

GAO investigators found that a single Education Department decision — requiring applicants for the new program to also apply under the old program — has had drastic consequences. More than 70 percent of the denied applications under the new program were rejected because the borrower hadn’t applied through the old program as well.

That policy, the GAO wrote, does not match up the Education Department’s “strategic goal to improve customer service to borrowers.”

“As a result, some eligible borrowers may miss the opportunity to have their loans forgiven,” the GAO wrote.

Education Department officials told the GAO that the application for the old program collects information needed for the new program, prompting the agency to require borrowers to go through both processes. This method also helped the department to unveil the new program on an expedited 60-day timeline, it told the GAO, according to the report.

Still, the GAO wrote that some Education Department officials themselves acknowledged that the requirement to apply under both programs “can confuse borrowers.” Loan servicers, too, cited potential for confusion.

Another concern raised by the GAO: the Education Department’s rejection letters, which do not inform borrowers of all of their options for appealing that decision, such as asking for an additional review by their loan servicer, or filing a complaint with the student-aid feedback system or its ombudsman.

The GAO recommended several improvements, all of which the Education Department has agreed to put into effect. They include allowing applicants under the old forgiveness program — which is still active — to simultaneously ask to be considered under the new version as well. Rejection letters will also be updated to inform borrowers more fully of their appeal rights, and the department will expand outreach so that borrowers are aware that the new forgiveness program exists.

But in her written response to the GAO, Diane Auer Jones, principal deputy under secretary of education, made it a point to place some of the blame on Congress. She argued that lawmakers, from the outset, had designed a forgiveness program that they knew many borrowers wouldn’t qualify for. For example, the program applied only to direct loans, which most borrowers at the time, in 2007, didn’t have.

Borrowers with other federal loans can always consolidate them into a federal direct loan. But to qualify for the 10 years of repayment needed for loan forgiveness, they must refinance their loans right away, before they start making payments. Otherwise, Jones wrote, those early payments don’t count.

The projected budget of the original program was modest, which reveals, she said that it “was intended to serve a relatively small population of borrowers.”

Michael Vasquez is a senior investigative reporter. Follow him on Twitter @MrMikeVasquez, or email him at michael.vasquez@chronicle.com.