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.

Effective Rates of Negatively Amortized Federal Student Loans

Excellent post from my internet friend Dr. Sotirios Keros over at Doctored Money (a great non-profit non-conflicted site on physician finance and student loans), “Your Federal Student Loan Interest Rate May Be Lower Than You Think”:

Federal students loans are unlike other types of debt in that the interest is not capitalized except in certain circumstances. This means that your unpaid interest is not costing you anything. You still owe it, of course, but it represents “interest-free” debt. For example, consider an initial balance of $200,000 at 5%, which now has accumulated unpaid interest of $30,000. Although you owe a total of $230,000, interest only accumulates at $10,000/year. That’s an effective rate of 4.3% (e.g. $10,000/$230,000).

Seriously, check out the post.

Misunderstanding how federal student loan interest works is something I see wrong all the time, especially on the rare occasions I log into any of the physician finance-type Facebook groups. Accrued interest doesn’t hurt you in the short term unless it capitalizes. For example, rushing to make a token interest-only payment does nothing to change the natural history of your loans. That money can be leveraged–for example even just earning trivial interest in an online savings account–before being deployed more effectively.

The common advice from sites that make lots of money from student loan refinancing is that all graduating residents not doing PSLF should refinance. This seems logical because the private company sticker rates are nearly always less than the federal rates. But that’s not necessarily functionally true, because a resident whose loans spent years negatively amortizing likely has a big chunk of uncapitalized interest that’s doing nothing while in the federal program but will capitalize and earn its own interest after refinancing.

It may still be the right choice, but except in certain situations, you can’t just compare rates apples to apples and know you’re saving money.

You have to compare the effective rates!