Buffalo Law Review

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A few people have now applied for and obtained tax-exempt debt forgiveness of their federal student Direct Loans under the Public Service Loan Forgiveness (PSLF) program after satisfying the requirements of 10 years of post-October 1, 2007 employment in a “public service job.” While only a relatively small number of people have received debt forgiveness to date, I estimate that as the number of persons eligible ramps up sharply in 2018 and thereafter eventually 200,000 people a year or more will obtain debt forgiveness under the PSLF program, at a total cost to the Treasury of $12 billion per year or more. Estimates are that up to one-quarter of all employment qualifies as a public service job that will allow the employee to obtain debt forgiveness for these loans.

For such a large and costly program, the precise eligibility criteria are crucial. The statutory definition of a “public service job” is very broad and specifically lists numerous categories of public service, and is in some ways ambiguous. The Department of Education (DOE) in 2008 issued regulations regarding PSLF program employment eligibility, but those regulations have serious deficiencies. First, the regulations improperly define a public service job in a manner that is inconsistent with the statute by imposing a “public service organization” employer requirement that is not in the statute. This requirement works to disqualify some statutorily-listed forms of public service employment from debt forgiveness eligibility, in particular public services employment provided on behalf of for-profit businesses or certain non-profit employers, and also improperly allows eligibility for debt forgiveness for some employees of private non-profit employers who are not employed to provide a qualifying public service. Second, the regulations fail to clarify vague statutory language regarding what constitutes “public” service, most importantly regarding the scope of “public interest law services.”

The DOE has also recently rescinded several previously granted certifications of employment as qualifying on the basis of a newly imposed restrictive “primary purpose of the employer” requirement that is not in the governing statute nor in the DOE regulations, actions that have been challenged in court by the American Bar Association. Even if this restriction is upheld, which appears unlikely, there is a strong argument that the DOE should be estopped from rescinding prior certifications.

In order to avoid unnecessary litigation once the expected large number of applications for debt forgiveness begin to be filed in 2018 and afterwards, I recommend that the DOE first seek Congressional action to clarify the contours of the PSLF program’s employment eligibility statute. Further, while awaiting such action, the DOE should rescind its public service organization eligibility requirement which is inconsistent with the statute, clarify that there is no primary purpose of the employer requirement, and provide much more detailed guidance regarding the contours of the various statutorily-specified forms of qualifying public service, especially public interest law service. If PSLF program employment eligibility is to be either narrowed or expanded, this should be done through appropriate legislation, and not through unauthorized and covert DOE actions.