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The Incredible, Rage-Inducing Inside Story of America’s Student Debt Machine

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Ryann Liebenthal writes in Mother Jones:

When Leigh McIlvaine first learned that her student loan debt could be forgiven, she was thrilled. In 2008, at age 27, she’d earned a master’s degree in urban and regional planning from the University of Minnesota. She’d accrued just under $70,000 in debt, though she wasn’t too worried—that’s what it took to invest in her future. But graduating at the height of the recession, she found that the kind of decent-paying public-sector job she’d anticipated pursuing was suddenly closed off by budget and hiring freezes. She landed a gig at a nonprofit in Washington, DC, earning a $46,000 salary. Still, she was happy to live on that amount if it was the cost of doing the work she believed in.

At the time, she paid about $350 each month to stay in a decrepit house with several roommates, more than $100 for utilities, and $60 for her cellphone bill. On top of that, her loan bill averaged about $850 per month. “Rent was hard enough to come up with,” she recalled. Then one day while researching her options, she read about something called the Public Service Loan Forgiveness (PSLF) plan. At the time, Congress had just come up with a couple of options for borrowers with federal loans. They could get on an income-based repayment plan and have their student loans expunged after 25 years. Or, for borrowers working public service jobs—as social workers, nurses, nonprofit employees—there was another possibility: They could have their debt forgiven after making 10 years’ worth of on-time payments.

The PSLF program, backed in the Senate by Ted Kennedy and signed into law by President George W. Bush in 2007, was the first of its kind, and when people talk about “student loan forgiveness,” they’re usually talking about PSLF. It was implemented to address low salaries in public service jobs, where costly degrees are the price of entry but wages often aren’t high enough to pay down debts. A Congressional Budget Office report last year found that public-sector workers with a professional degree or doctorate earn 24 percent less than they would in the private sector. In Massachusetts, a public defender in 2014 made just $40,000, only about $1,000 more than the court’s janitor. Meanwhile, 85 percent of public-interest attorneys in 2015 owed at least $50,000 in federal student loans, according to one study. More than half owed at least $100,000. According to a 2012 study, 65 percent of newly hired nonprofit workers had student debt, and 30 percent owed more than $50,000. In order to keep people working as public defenders, or rural doctors or human rights activists, something had to be done. PSLF was an attempt at a fix.

The program was by no means a handout. Successful PSLF participants, according to one estimate, pay back as much as 91 percent of their original loan amount, so enrollees primarily save on interest. The program’s appeal was that it offered a clear path for people who struggled to pay back loans, or struggled to envision how they would ever pay them off without abandoning public service jobs for higher-paid positions elsewhere. For McIlvaine, who dreamed of working to make cities more livable, PSLF was the only way she could imagine paying off her debt. When she sent in her first payment in the fall of 2009, she felt like she’d put herself on track to get to “a place where the debt would eventually be lifted.”

Several companies, including one called FedLoan Servicing, contracted with the Education Department to handle loan repayment, and until 2012, when the government assigned all PSLF accounts to FedLoan, borrowers had to keep track of their progress toward forgiveness. At the time she began paying into the program, McIlvaine wasn’t too perturbed that there was no official way to confirm her enrollment, no email or letter that said she had been “accepted.” She trusted the Education Department to run the program effectively and followed its parameters, taking care to send in the yearly tax forms that proved her eligibility and always submitting her payments on time.

Everything seemed fine for the first few years—McIlvaine initially made payments through an Education Department website, and then, as the department increasingly outsourced its loans, hers were transferred to a company called MOHELA. But once FedLoan took over, things quickly started to go awry. While FedLoan was sorting out the transfer, her loans were put into forbearance, an option usually reserved for people having difficulty making payments; during a forbearance, any progress toward forgiveness stalls, and loans balloon with interest. Then the company failed to put several of her loans on an income-based plan—so her payments briefly shot up, she says. And when McIlvaine submitted her tax information, she says FedLoan took months to process the paperwork—while she waited, the company again put her into what it called “administrative forbearance,” so none of the payments she made during this period counted either. (McIlvaine requested a forbearance at least once, after turning in late renewal paperwork.)

McIlvaine initially hoped these problems were just “hiccups,” but they kept piling up. And when she tried to figure out what was going on, she says, FedLoan’s call center “loan counselors” brushed the whole thing off as an inconsequential administrative oversight. Astonishingly, the cycle would repeat over the next four years.

Despite these frustrations, McIlvaine kept diligently sending in her checks. In January 2016, she took advantage of a new program introduced by President Barack Obama that helped lower her monthly bill, and when she did, her loans were again inexplicably put into forbearance. On top of that, four months later, as she was trying to save for her wedding, FedLoan sent her a bill for $1,600, more than $1,300 above her monthly payment amount. When she phoned the company in a panic, they told her the bill was an administrative glitch and said not to worry about it; they’d sort it out. Warily, she accepted—after all, there wasn’t much else she could do.

In August 2016, McIlvaine was offered a job at Mercy Corps, a nonprofit in Portland, Oregon, which came with a $10,000 raise and great benefits—the extra security she believed would allow her to start a family. But Mercy Corps required a credit check, and McIlvaine discovered that FedLoan had never actually dealt with that $1,600 bill, instead reporting it as 90 days past due and plunging her previously excellent credit score to an abysmal 550. When she called FedLoan in tears, she recalls, she was treated dismissively and told to “pay more attention” to her loans—and again the only option offered to her was to take an administrative forbearance while the company sorted out the issue. Ultimately she got the job, but only after she lodged a formal complaintwith the Consumer Financial Protection Bureau, the watchdog agency created during the Obama era, which prompted FedLoan to send her a letter in October 2016 claiming the company had fixed the issue and that her credit had been restored. “But in true FedLoan Servicing style,” she told me, “they only contacted two of the three credit bureaus.” It took several more months to fix her score with the third bureau, Equifax.

If not for FedLoan’s errors and delays, McIlvaine estimates, her loans would be eligible for forgiveness as soon as 2020. But instead, in the nine years she’s been participating in PSLF, months of payments haven’t been counted toward her 10-year requirement, ultimately delaying the date of her forgiveness by at least a year. All the while, although she’s been making payments of between $300 and $450 a month, her total debt has not gone down. After nearly 100 payments, she still owes the entire amount she initially borrowed.

FedLoan declined to comment on McIlvaine’s tribulations. But as complaints to the Consumer Financial Protection Bureau and lawsuits against the Education Department and FedLoan pile up, she’s hardly alone. In 2017, the bureau issued a report excoriating FedLoan for mismanaging PSLF, misleading borrowers, and losing track of payments. The previous year, the American Bar Association had filed suit against the Education Department for reneging on its own rules about how the program was supposed to work and who was eligible for forgiveness. Then, in August 2017, . . .

Continue reading.

Written by LeisureGuy

30 August 2018 at 9:08 pm

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