Panic! at the Department of Education

Several times in the past couple of days people have asked me to explain an alarming New York Times article titled Student Loan Forgiveness Program Approval Letters May Be Invalid, Education Dept. Says.

This is not an official statement on behalf of my employer, but I can personally offer some reassurance that it’s not as horrible as it sounds.

The headline is of course very, very upsetting to a lot of people who have been counting on loan forgiveness for their public service. Needlessly so, in my opinion.

The issue, like everything else about our student loan system, is a result of the complex interplay between tax law, the Constitution, personal finance, lobbying by banking interests, and decades of amendments to the Higher Education Act of 1965. There’s a reason it’s easy to get confused about this: It’s stupidly complicated.

Public Service Loan Forgiveness is generally based on whether your employer is an eligible nonprofit. So, whether you’re an accountant or janitor or social worker or doctor, the first question for every applicant is “do you work for a qualifying employer?”

Eligible employers include all 501(c)(3) nonprofits, even church-affiliated groups. Also all government (city, state, federal), police, military, public safety, etc. Those are very clear.

Clearly ineligible are anyone working for for-profits, plus clergy, union organizers and partisan political groups. That is, social workers for Catholic Charities are in, but not priests. (I told you the Constitution came into it: subsidizing clergy would become an Establishment clause issue).

There is, however, one area of ambiguity: There are other kinds of nonprofit organizations than 501(c)(3). They’re helpfully labeled 501(c) 4, 5, and 6. That’s unions, professional associations, and so on. For example, the NFL, until about 2 years ago, filed as a 501(c)(6) nonprofit.

Certain non-501(c)(3) nonprofits ARE eligible for PSLF, but ONLY if they (or possibly just those employees) perform certain kinds of services. The question here is that a handful of people applied based on their work for the American Bar Association. They say they were providing eligible services.

Now we come to another complication: the Department of Education doesn’t administer this program themselves, because in America we believe that government can’t do anything right, so it should pay other people to screw things up.

In this case, FedLoan Servicing approved the application on behalf of the Department of Education. Then the Department of Education came back and overruled them.

This became a whole Big Thing because the Department of Education just pissed off a bunch of well-connected lawyers. So, they’re going to get sued and the suit is going to get news coverage.

So, if you think you’re qualified for Public Service Loan Forgiveness, and you’re worried about it, don’t. You’re probably fine.

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