Once in IDR/IBR/PAYE/REPAYE, Always in IDR/IBR/PAYE/REPAYE

“I got married” or “My income went up” and “they MADE me change repayment plan because I didn’t qualify anymore.”

No no no. They cannot make you do this. You are never forced to leave a federal repayment plan once you have been accepted for it, ever (unless you are not making your payments or don’t submit your annual income certification).

When in an Income-Driven Repayment (IDR) plan like IBR, PAYE, or REPAYE, payments may change annually—but the plan does not. People are more aggressive in negotiating their cable bill than they are in dealing with student loans servicers! Switching the acronym of your payment plan not only capitalizes your accrued interest but can easily cost could thousands or even tens of thousands of dollars.

If you lose your personal financial hardship while enrolled in IBR or PAYE, your interest capitalizes, but you’re not kicked out of the plan, and you are not forced to choose a new plan. Because you “no longer qualify” for the plan, your payments are capped at the 10-year standard repayment amount. “No longer qualify” is deliberating confusing phrasing. Yes, at this point, if you were to freshly apply, you would not qualify and would not be accepted into the plan. But guess what? You’re not applying, you’re just recertifying your income to determine your monthly payment amount. It doesn’t matter if you get married or if you win the lottery. Your plan is your plan until you choose otherwise. You don’t need to “qualify” anymore: once in IBR, always in IBR. Once in PAYE, always in PAYE.

People are being told during their annual income recertification that they need to switch from IBR and PAYE to REPAYE once they lose a PFH, and that is incorrect. All switching does is unnecessarily subject borrowers to uncapped higher monthly payments. The problem is, once you’ve switched to REPAYE on this bad advice, you can’t switch back (because you don’t qualify, see what they did there?).

You can never tell if this is ignorance or malevolence, but given that this is generally coming from FedLoan in the context of borrowers planning for PSLF, a “mistake” like this that results in borrowers spending more per month and getting less forgiven does look pretty suspicious.

Bottom line: This is just wrong. If you file your forms on time and make your monthly payments, your plan will never change.

Don’t let anyone tell you otherwise.

FedLoans instructs borrowers to commit fraud

I keep hearing of cases of FedLoan Servicing providing blatantly false and dangerously misleading advice to borrowers when it comes to submitting their annual income recertification.

In fact, it’s so clearly wrong that I wondered if the people reporting it were simply mistaken or confused until I’d heard it repeated so many times. It concerns how to file your recertification when utilizing the Married Filing Separately “loophole” in IBR or PAYE.

The quick background: as you may know, federal student loan borrowers must submit their income annually in order to partake in any of the income-driven repayment plans including IBR, PAYE, and REPAYE. If the borrower is married and files their taxes jointly with their spouse (which is the common choice), then their family income is used to calculate their monthly payments. But if they file their taxes separately, then their payments under IBR or PAYE would be based on just their own income and ignore their spouses. This is considered a bit of a loophole, which is why the newest payment plan REPAYE takes into account household income regardless of tax filing status.

So here’s the fraud part. There’s generalized incompetence, and then there is this: FedLoan is actually telling borrowers who have correctly filed their taxes separately that in order to ignore spousal income–even in IBR or PAYE–that they need to check a box saying that they are “married but cannot reasonably access [their] spouse’s information.”

This is simply not true and does not follow any of the rules. What it does do is clearly misuse a niche box that was provided to help estranged spouses or sufferers of domestic violence.

In fact, this very kind of fraud was anticipated by commenters and addressed by the government, because some folks were worried that simply allowing for “self-certification” of spousal status would give people the chance to reopen the MFS loophole that REPAYE closed by simply pretending that they’re not really married.

From the Federal Register:

The commenter also suggested that borrowers who want to evade the requirement will not bother to have their spouse keep separate income information, but will falsely claim that they have no access to such information instead. According to the commenter, if the Department simply accepts such claims, some borrowers will unfairly benefit, and if the Department contests borrower claims that their spouse’s income information cannot be accessed, it will lead to controversies and lawsuits at great expense to taxpayers.

We note that the strategies suggested by the commenter who raised concerns that some borrowers might try to evade higher payments by hiding income or falsifying the certification form would be fraudulent. We expect that most borrowers would be deterred from falsifying information on a Federal application form by the significant penalties that can be applied.

So there you have it. FedLoans is–for absolutely no reason–essentially forcing borrowers to commit fraud in order to rightfully exclude spousal income. People have been submitting their annual recertifications incorrectly under this specific direction for years and repeatedly so, and FedLoan is apparently still giving this advice on a regular basis.

My personal advice (as an individual citizen who thinks fraud is a thing to be actively avoided) is to simply not follow whatever particular variant of this incorrect advice you receive from whatever random representative you speak to. Instead, ask for someone higher up to set things right. There are definitely people in the organization that know that this is incorrect, so don’t give in and do the wrong thing. I would hope that this practice will become universally known as the fault of the loan servicers and not your personal failing, but the risk isn’t worth it.

Now, if you file taxes jointly and think you are being clever by checking that box in order to lower your payments, don’t do that. That’s definitely unequivocally fraud.

In a broader context, this is just another example of why you should not get your loan advice from a loan servicer. They have no fiduciary duty to actually help you, have been and continue to be sued for being awful at doing just that, and the current administration has done everything in their power to remove all momentum in addressing this problem.

Read a (free) book. Scour the web. Talk to an advisor. Whatever. Just don’t trust a servicer at face value.

You don’t need to submit a PSLF ECF when you first start a new job

You need at least one Employment Certification Form per employer for PSLF. A good rule of thumb is to submit annually to help make sure that FedLoan is counting your eligible payments correctly, and it’s a perfectly good idea to submit your first ECF a few months into a new job.

 


But, as you can see on the form, its purpose is to describe a period of qualifying employment that has already occurred and that FedLoan can thus use to mark each payment you made during the same period as eligible for and counting toward the 120 needed for PSLF.

As such, you need not try to submit a form the second you start a new eligible job such as your intern year. I’m looking at you, interns in July. You totally can, but it’s sorta meaningless outside of initiating the transfer to FedLoans if they’re not already servicing your loans. The main exception is if you’ve taken a job that you’re not sure qualifies and you want some official guidance before you keep working there. In which case, sure, fire away. In general, it makes sense to submit your first ECF after making a few months of qualifying payments.

Note that switching servicers can sometimes make other bureaucratic things like switching repayment plans complicated, so it’s advisable not to submit your first ECF near when your income recertification is due. Wait until that’s fully processed first. So, if you entered repayment in June or July and want to make sure things are moving in the right direction, then you could file an ECF sometime in the fall if you’re eager for some news.

You should absolutely submit your ECFs annually, but you should at the very least submit one at end of your tenure with each institution. You don’t want to be trying to get old employers to fill out things retrospectively or to have FedLoan reach back into the distant past to try to count up your payments for the first time. Experience has shown that counting is not really their strong suit.

Teachers sue the Department of Education over PSLF

Earlier this year the DOE mostly lost a lawsuit against the American Bar Association about PSLF. In that case, the government lost because it didn’t play by its own rules when it changed some complicated details about case-by-case employment approvals and then tried to inflict those changes retroactively on borrowers. It was pretty blatant and they lost.

In other news, I’m a doctor and not a lawyer, so that’s my personal layman’s take.

Anyway, the American Federation of Teachers just sued the DOE as well. But this one is a much tougher sell. Here’s the actual complaint. Their argument? That the government-contracted servicers did an egregiously bad job managing students’ loans and misled borrowers to such an extent that the government should be held liable for their servicer’s mistakes and bound to make serious changes to the administration of the program in order to uphold its original intent.

Pages of Tears

The claims are certainly factually true and seem reasonable in a common-sense way. Reading these Kafkaesque stories of blatant, repeated, and irredeemable bureaucratic failure is as outrage-inducing as it is depressing. There’s no doubt that the administration of loan servicing in general and PSLF specifically is not what Congress had in mind when it passed the bill. The government servicers have done a terrible job across the board, but especially so when it comes to helping borrowers navigate income-driven repayment and PSLF. This is not helped in any way by the fact that formal guidance was really limited from the department itself for the first several years of the PSLF program. The first ECF wasn’t even available until five years in.

It’s comparatively easy for more recent graduates and pundits to roll their eyes at all these teachers and the other 99% of folks rejected in that first batch of PSLF applicants and point out that they didn’t qualify. Of course they didn’t! But the argument is that we are effectively punishing citizens who could have otherwise earned a rare entitlement for trusting what they reasonably believed was official advice.

Ultimately–generalized day-to-day incompetence aside–the problem is that all of these borrowers who are angry about not qualifying for PSLF in fact do not qualify for PSLF. They didn’t do the right things. Some have the right loans but used the wrong payment plan (the issue that was temporarily addressed when Congress passed the temporary “TEPSLF” expansion). But Congress has not attempted to address the “wrong loan” (usually FFEL) component nor made changes to how the program or loan servicing is handled that could address the disaster on the ground. For her part, secretary Betsy “I’ve-never-visited-a-school” DeVos‘s solution was to try to give all of the business to one unqualified company instead of several and put her friends at Navient (current defenders of a federal lawsuit for sucking) in the shortlist (fwiw, that proposal mercifully died).

The Crux of the Case

So back to this lawsuit. The crux of the suit hinges on the argument that the Department of Education is responsible for the servicer’s incompetence, and basically argues that all borrowers deserve PSLF if they were misled by one of the contracted federal loan servicers.

And that takes us to the recent lawsuit that the department mostly lost against the ABA. I say mostly lost, because of the various counts brought against the department, the DoE did win a key victory. In a case where the servicer made a mistake and incorrectly approved a borrower’s ECF (employment certification form), the Department of Education fixed the mistake years later and removed years of PSLF eligibility from someone who thought they were in great shape. This was deemed totally kosher by the court. As long as the mistake was not a final agency action, the government wasn’t held responsible for fixing a “contractor’s error.”

These PSLF denials are not a matter of the posthoc rule changing the DoE lost about earlier this year. The relevant rules haven’t changed, and people are largely correctly rejected (with the exception of FedLoan’s inexplicable inability to count as high as 120). It’s basically a matter of abysmal customer service. And terrible customer service may not be enough.

From the ABA suit decision:

Moreover, although the Department previously confirmed to [the plaintiff] that his employment was eligible, an agency’s attempt to correct a “mistake in interpreting and applying its own recently promulgated regulations” does not necessarily trigger the APA’s prohibition on retroactive rules.

So, with the repeated caveat that I’m totally not a lawyer, it’s going to be a tough sell to convince the court that the bad actions and terrible advice from servicers should mandate a broad rewriting of the program architecture or large swath of additional forgiven loans. It’s probably going to rely on a really sympathetic ear who wants to go out of their way to favor the plaintiff.

Hope?

However, even if it fails, this case may still be a good PR move to stoke some high-visibility outrage. It would be more likely for these issues to be fixed by another act of Congress than for the court to swoop in and save the day. Though, along those lines, even the administration of another temporary expansion would be no small logistical feat given the slow-motion trainwreck that is FedLoan Servicing.

Tuition Dollars at Work

From Dr. Daniel Barron’s “Why Doctors Are Drowning in Medical School Debt” in Scientific American’s Observations blog.

Each year, only 41 percent of applicants are accepted into medical school. Because demand outstrips supply, medical schools have the economic upper hand and, because lenders invariably approve loans to cover tuition, schools can effectively set the price of tuition to be whatever they want. College kids who don’t like it need not apply—somewhere in the remaining 59 percent, an applicant is willing to pay.

[…]

Each year a class of new doctors graduates with a total of $2.6 billion in loans, with a median student debt of $194,000. And no one—not even the regulator tasked with protecting students—can say where this money goes.

He interviews the dean that made NYU tuition-free, who provides some interesting quotations. Also, if you read the article, please note that the Barrons need a new accountant.