Why Borrowers Don’t Qualify for Loan Forgiveness

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Mark Kantrowitz

By Mark Kantrowitz

September 9, 2019

A recent GAO report provides new insights into why borrowers don’t qualify for Public Service Loan Forgiveness (PSLF) and Temporary Expanded Public Service Loan Forgiveness (PSLF). It seems that both the borrowers and the PSLF servicer may be at fault.

As of March 31, 2019, two thirds (68%) of Employment Certification Forms (ECF) have been approved, yet only 1.1% of PSLF applications and 3.6% of TEPSLF applications has been approved. Data from a new GAO report, Public Service Loan Forgiveness: Improving the Temporary Expanded Process Could Help Reduce Borrower Confusion, shows that the approval rate for TEPSLF dropped to 1.2% as of May 30, 2019.

A key difference between approval for loan forgiveness and approval of Employment Certification Forms concerns the counting of qualifying payments, in addition to TEPSLF-specific requirements.

Number of Qualifying Payments

More than half (53%) of applications for PSLF were rejected as of March 31, 2019 because the servicer says that the borrower has not made 120 qualifying payments.

According to the GAO, more than two-thirds (71%) of applications for TEPSLF were rejected as of May 30, 2019 because the borrower did not previously submit an application for PSLF. This is a sign that a significant number of borrowers are not following directions, perhaps because the process is confusing.

Among the remaining applications for TEPSLF, more than half (58%) were rejected because the borrower has not made 120 qualifying payments. This is similar to the rejection rate for PSLF.

Wishful Thinking?

Of the borrowers who have not made 120 qualifying payments, almost two-thirds (62%) have not been in repayment for 10 or more years. This means it is impossible for these borrowers to have made 120 qualifying payments.

This suggests that the borrowers are applying for forgiveness even though they don’t know that they qualify for forgiveness. Perhaps the loan forgiveness program is so complicated that borrowers are unsure whether they qualify. Perhaps the borrowers don’t pay attention to the details. Perhaps the borrowers are hoping that the forgiveness fairy will grant them loan forgiveness even if they don’t yet qualify.

Or The Servicer Can’t Count?

But, 38% of the borrowers who have not made 120 qualifying payments, according to the servicer, have been in repayment for 10 or more years. According to the GAO report, the servicer says that 24% had made less than 120 qualifying payments and 14% had less than 120 months of qualifying employment.

Yet, it seems likely that the servicer is failing to correctly count the number of qualifying payments and the number of months of qualifying employment for these borrowers.

According to the GAO report:

Our review of TEPSLF complaints made to Education from borrowers found eight examples of borrowers contesting the loan servicer’s determination of the number of qualifying payments. In six of these instances, the TEPSLF servicer determined that the borrowers were correct and had met requirements for loan forgiveness.

A lawsuit filed by the American Federation of Teachers on July 11, 2019, Weingarten v. Devos, gives credible examples of borrowers who were continuously employed as teachers and who continuously repaid their federal student loans in income-driven repayment plans for at least 120 months. The borrowers were never in default. Yet, the servicer provided them with several different counts of the number of qualifying payments, all less than 120.

Although the payment count occasionally may have been reduced by forbearances due to delays in updating the annual paperwork or the loans being in a paid-ahead status due to prepayment, the number of qualifying payments should nevertheless have been much higher than the figures reported by the servicer. Moreover, this would not explain the inconsistency in the varying qualifying payment counts provided by the servicer.

Causes of the Borrower Problem

Part of the problem is the Public Service Loan Forgiveness program is too complicated. The borrower must make 120 qualifying payments while repaying their federal student loans in the Direct Loan program in an income-driven repayment plan or standard repayment while working full-time in qualifying employment. Payments made prior to October 1, 2007 do not count. Consolidating the loans resets the clock on loan forgiveness.

There are just too many details. A checklist of the requirements for public service loan forgiveness includes 45 checkboxes.

Many of these requirements were added by Congress to reduce the cost of the loan forgiveness program, despite being warned that the increased complexity is a problem.

When there are too many details, it is easy for a borrower to overlook a few details. It also increases the likelihood that even careful borrowers will make a mistake.

It also increases the odds of the borrower’s lender providing the borrower with incomplete information. For example, borrowers in the FFEL program could repay their federal student loans in the income-based repayment plan (IBR). IBR is the only income-driven repayment plan available in both the FFEL and Direct Loan programs. A borrower might confirm that their loans are in an income-driven repayment plan but not realize that FFEL loans are not eligible for public service loan forgiveness.

Causes of the Servicer Problem

Part of the problem may be caused by a failure to fully transfer all data from previous servicers of the loans. When a borrower files an Employment Certification Form or applies for PSLF or TEPSLF, their loans are transferred to FedLoan Servicing, the contractor that specializes in public service loan forgiveness.

However, the National Student Loan Data System (NSLDS) should have enough payment history information to confirm that the previous payments were in an income-driven repayment plan or standard repayment plan and therefore qualifying.

Part of the problem may be caused by incorrect implementation of programming logic when merging information from multiple Employment Certification Forms, PSLF and TEPSLF application forms and the repayment history, especially when various date ranges overlap. Counting the number of qualifying payments involves calculating the intersection of the union of the intersection of various date ranges.

If the servicer uses a modern relational database, like SQL, one way to count the number of qualifying payments is to set a flag in each payment record when the payment satisfies the requirements to be a qualifying payment and another flag when the borrower was working for a qualifying employer. Then, counting the number of qualifying payments would involve counting the number of payment records for which both flags are set.

Other Reasons

Other reasons why applications for loan forgiveness are rejected include:

  • Borrower did not satisfy the TEPSLF requirements for the last payment and the payment 12 months prior. These payments must be at least as much as the borrower would have paid under an income-driven repayment plan.
  • No qualifying federal loans. FFEL program loans, Federal Perkins Loans and Federal Parent PLUS Loans are not eligible unless consolidated into a Federal Direct Consolidation Loan. Private student loans are not eligible.
  • Missing income information.
  • Employment dates. Qualifying employment prior to October 1, 2007 or prior to the disbursement dates for the Direct Loans do not qualify.
  • Employer not eligible.
  • Other denials. The borrower’s loans must not be in default.

Collectively, however, these rejection reasons account for a small percentage of the reasons why applications for loan forgiveness are denied.

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