Four Ways To Minimize The Chances Of Maddening Rage If You Are A Participant Of The Public Service Loan Forgiveness Program

If you're in the PSLF program, stay on top of your student loans and make sure that you don’t get screwed over.

Earlier this year, I thought that attorneys may have a harder time getting their federal student loans forgiven under the 10-year Public Service Loan Forgiveness (PSLF) program. I thought this was due to two reasons. First, the PSLF program stands to cost the federal government and taxpayers millions of dollars with questionable returns. Second, it is believed that some lawyers will leave public service for more lucrative jobs in the private sector once their loans are forgiven. I was hoping that the Department of Education would set up a system to ensure that the genuinely needy are eligible for forgiveness while those who get lucrative jobs should pay their fair share. But it seems like attorneys are having a harder time obtaining student loan forgiveness although for different reasons.

A few weeks ago, Mother Jones published “The Incredible, Rage-Inducing Inside Story of America’s Student Debt Machine.” The piece profiled a few graduates participating in the PSLF program and the problems they faced when trying to obtain loan forgiveness. Two lawyers were profiled.

Under PSLF, you first get on an income-based repayment plan. You then make 120 months of payments while working for a qualified organization (such as the government or a 501(c)(3) entity). Upon completion, the remaining balance of your federal loans are forgiven without having to pay income tax on the debt cancellation.

One lawyer told the author about his problems with his loan servicer FedLoan. He said that some of his payments were initially not credited towards the 10-year PSLF payment plan and some of his loans were placed on a forbearance without his knowledge or permssion. It took months before the errors were corrected. Also, when he called FedLoan, the representatives would give him different answers about the number of payments made. In one case, the FedLoan representative understated his payments by 50 which could have delayed his forgiveness by four years.

The other lawyer profiled worked as a children’s staff attorney at the American Bar Association’s Pro Bono Asylum Representation Project (ProBAR) for three years. The Department of Education initially certified her work for ProBAR as qualifying employment for PSLF purposes. But it was later disqualified and her payments no longer applied towards PSLF, thus extending her forgiveness date. This was likely due to two reasons. First, the ABA is not a 501(c)(3) charitable organization. It is actually a 501(c)(6) tax exempt organization for professional trade groups. Second, while the regulations state that working for a non-501(c)(3) can still qualify for PSLF treatment so long as they engage in public interest law services, the organization must be funded in whole, or partially by the federal, state, or tribal government. This lawyer and the ABA sued the Department of Education arguing that the regulations goes against the statutory intent of PSLF — specifically providing debt relief for those who perform public service work in exchange for lower pay.

PSLF began with a noble purpose but as time passed, it created several unintended consequences. First, it is arguably an inefficient use of capital and creates a moral hazard because there is no incentive for others to minimize debt. Schools had no incentive to minimize tuition for those committed to working for the public sector. Borrowers had an incentive to borrow as much as possible knowing that the loans will be forgiven in 10 years after graduation tax free.

Second, it is arguably becoming an inefficient use of labor. People who initially never wanted to go into public service law are suddenly interested in order to obtain loan forgiveness. So basically, this means that everyone will be miserable. Those who do get public service jobs but don’t like the work are stuck doing it for at least 10 years. Also, those with a genuine interest in public service will have a harder time getting a job.

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In addition to unintended consequences, it raises questions as to what type of work should qualify for PSLF. For example, on the Department’s PSLF FAQ page, it states that qualifying employment is not about the specific job you do for the employer but who the employer is. When I think of a routine job like an accountant, custodian, or a file clerk, if they are working for a 501(c)(3) entity, they should qualify for PSLF because their work helps the entity function and thus perform their charitable duties. But what if a private law firm wants to spend 12 months providing legal services for the poor but don’t want to go through the process of setting up a 501(c)(3)? Why shouldn’t the employees receive PSLF treatment in this situation?

While Congress and the Department of Education tries to figure this out, for those who are on the PSLF program or are considering it, there are a few things you should do to ensure that you avoid or minimize the chances of running into problems.

First, work for the proper employer. Make sure that the employer is a 501(c)(3) organization and you work a minimum of 30 hours per week. If the organization is not a 501(c)(3), then make sure that they are performing public service legal work and that they are at least partially funded by a domestic government.

If the ABA and state bars are reading this, if your organization is classified as a 501(c)(6), try to establish a separate or related 501(c)(3) organization solely devoted to performing public service work. This new entity can employ lawyers and other staff who will then be eligible for PSLF treatment.

Second, stay on top of your loans. You have to assume that the Department of Education wants to find a reason to delay or eliminate your loan forgiveness. So avoid common mistakes. And do not agree to involuntary forbearances at all costs which can delay loan forgiveness. And keep up with the latest news updates that involve PSLF because it appears that reform is inevitable.

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Third, know who to turn to in case you have a dispute. The National Consumer Law Center’s Student Loan Borrower Assistance Project is a great resource. The Consumer Financial Protection Bureau is also a great resource. However, their student loan ombudsman recently resigned, publicly criticizing the organization for failing to look out for students’ interests. Finally, you may want to get to know a private student loan attorney in case all else fails.

Lastly, there is the issue of taxes. Even if you are a W-2 employee with a few simple tax forms, you should work with a tax professional who can find other ways to minimize your Adjusted Gross Income which can also minimize your student loan payments. A tax professional who is familiar with IBR and PSLF would be ideal although these people are quite rare.

The PSLF program is currently like the restaurant that has lousy wait staff but people go to anyway because the food is good. The 10-year road to loan forgiveness is a long one fraught with obstacles: inconsistent policies, staff who don’t seem to know anything, lost documents, and frequent involuntary deferments. While PSLF should be reformed or even eliminated altogether, existing participants should not have to endure unnecessary delays, disputes, and drama. Participants should be able to quickly access information on their account and be able to resolve disputes quickly. In the meantime, it is on the PSLF participant to stay on top of their student loans and make sure that they don’t get screwed over. Because the government has no incentive to do it for you.


Shannon Achimalbe was a former solo practitioner for five years before deciding to sell out and get back on the corporate ladder. Shannon can be reached by email at sachimalbe@excite.com and via Twitter: @ShanonAchimalbe.