Department of Education Claims PSLF Approval Letters May Be Invalid

Posted on April 10, 2017 at 12:00pm by
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Several months ago, we wrote a blog discussing a lawsuit filed by the American Bar Association (ABA) against the Department of Education. The lawsuit involved several attorneys who had their Public Service Loan Forgiveness (PSLF) program eligibility retroactively revoked. According to the attorneys, they had received PSLF approval letters from their loan servicers. The Education Department claimed the approvals were a mistake.

The Education Department recently submitted a legal filing claiming approval letters for the PSLF program sent by servicers are not legally binding. According to the Education Department, they can revoke eligibility for the program at any time.

More than 550,000 people have signed up for PSLF, which allows borrowers with Direct loans (or FFEL loans consolidated into Direct loans) to receive student loan forgiveness after 10 years of payments. Borrowers do not have to pay taxes on the forgiven amount. PSLF is popular with degree paths that are notorious for student loan debt (attorneys, doctors and other highly specialized professions).

Can You Decrease the Chances of Being Denied Eligibility for PSLF?

There is no certainty that your eligibility will not be revoked. However, the borrowers involved in the lawsuit against the Education Department worked for nonprofit organizations. To be eligible for the PSLF program, you must work full-time for one of the following:

  • Government organizations at the federal, state, local or tribal level
  • Nonprofits that are tax-exempt under 501(c)(3) of the Internal Revenue Code
  • Nonprofits that provide qualifying public services. If you read the ABA’s filing, it is clear they were making the case that their employees are engaged in providing these services. The ABA also claims they are a 501(c)(3) nonprofit organization.

The second and third options have caused problems for borrowers enrolled in the PSLF program. If you want to take advantage of PSLF, the first option may be less of a grey area. That is not to say the recent development in this case is not troubling.

The Kansas City bankruptcy attorneys at The Sader Law Firm can help struggling student loan borrowers look at options for managing their debts.

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