Why the Federal Public Service Loan Forgiveness Program is Unfair

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You probably aren’t even aware of this, but there’s a special loan forgiveness program available for recipients of federal student loans — but if you work for someone who has the nerve to be seeking a profit, you’re not eligible.

The program, established by the College Cost Reduction and Access Act of 2007, works like this: Work in a public-service job for 10 years while making payments on your Federal Direct loans and — as long as you don’t bump up against income limits — the rest of what you owe will be forgiven at the end of those 10 years.

(LIST: What To Do When Your Kids Are Terrible With Money)

How is public service defined? Basically, it’s any job that involves working for the federal, state, or local government, or for a tax exempt 501(c)(3) non-profit — you know, like the American National Cattle Women Foundation.

If you have student loan debt and happen to be working at a government or non-profit job, you should be pleased with this program. But if you’re anyone else, you should be offended by it.

The most offensive part is the notion that anyone who works for the government is automatically involved in public service and therefore deserves help with their student loans that those of us in the private sector don’t deserve. I don’t know about you, but I don’t like the idea of the government having special taxpayer-financed deals available only to a select cadre of people who work for Washington. Consider these two barely hypothetical scenarios:

  1. John works at a cancer research start-up. He devotes 80 hours a week to his work in the lab, and his $40,000 per year salary (he has stock options but most start-ups don’t go anywhere, so those are more like lottery tickets than income) barely covers the payments on his $30,000 in student loans. It would have been more, but he worked full-time during his undergrad years.
  2. Sam partied his way through college, racking up $30,000 in student loans, even though his parents paid for most of his expenses. Most of his student loan money was really used for living expenses — and by living expenses, I mean beer — and when he graduated, he used a family connection to land a job at his local Department of Motor Vehicles, where he processes license renewals. He’s the last one to work every day and the first one to leave, and most of the time he’s hungover. He also makes $40,000 per year.

Under the loan forgiveness program, John will have to pay back all his federal loans with interest. Sam will have all his loans forgiven after 10 years of payments because he is working in “public service.” If you think that’s the way it should work, I don’t know what to say. The reality is that there are many people working for the government who are not serving the public, and many people working for private companies who are serving the greater good.

(MORE: Congratulations, Class of 2011: You’re the Most Indebted Graduates Ever)

The notion that working for the government is automatically more worthy of loan forgiveness than working for a private company is downright offensive to the millions of people who work hard every day doing work that improves people’s lives while working for companies that happen to be privately owned.

One of the arguments in favor of this loan forgiveness program is that people who work for the government earn less than their private sector counterparts. Two problems with this argument:

  1. It’s debatable whether it’s even true. A USA Today analysis, for instance, found that federal workers earn more than double what their private sector counterparts earn.
  2. Even if it is true that people working for governments and non-profits earn less, offering loan forgiveness as part of these pay packages actually discriminates against anyone who doesn’t have student loans — effectively requiring them to perform the same work for a smaller pay package than someone with debt. This isn’t a program that attracts the best workers, it’s a program that attracts the workers with the most debt — and there is some evidence that financial stress actually inhibits productivity.

We need a comprehensive solution to the problem of excessive student loan debt in America. But that solution should benefit everyone, not just those who happen to work outside of the private sector.

8 comments
Freddy5
Freddy5

The government told everyone to consolidate their student loans . Now the consolidation loan is not forgiven . Why not? The banks that hold my loans were all given money by the government. My tax dollars .

Our constitution, state and federal say we are all equal and entitled to certain rights , I don't want to leave out the part of pursuit of happiness. I am not happy and I don't think I am being treated as a equal and I sure don't have equal rights. I say amend the law. 

  Also why are parents forced by the government to finance a student's education. The law definitely targets the elderly  because by the time you pay off a parent loan you ate up your savings and retirement. I am 66 worked 44 years at the same job . I will have paid off the loan when I am 85 years old.  something is not right here. 

hotincleveland
hotincleveland

Aside from the other criticisms made of this article, at some points it misinterprets "government employee" to mean "federal employee." It gives an example of a hypothetical "lazy" DMV employee (who would be employed by his state, not by the feds), yet it suggests this student loan forgiveness program is available only to those who work "for Washington." The writer appears to be extremely confused, not to mention biased against government employees, implying that most of them are grifters benefiting from nepotism. There are plenty of public employees who got their jobs by applying for them, not by being someone's relative, and who work very hard at them for far less money than they might make in the private sector. True, some people who take a chance working for a startup will not make much either, but that's the chance they take; they still may become very wealthy someday. Whining that the student loan forgiveness program is "unfair" because some lazy people may benefit while other hard-working people don't isn't much of an argument. It would be terribly difficult to base student loan forgiveness on how hard people work at their jobs.


KristopherFranzen's situation also makes no sense; nobody can force you into making higher loan payments for 10 years in order to stay eligible (thus zeroing out your balance in 10 years anyway!). As for pageroff2, he sounds as if he is telling a story and making the program sound like "gaming the system."


gabbyabi44 needs to apply to enter the program. She seems to think she has to be in the 10-year program to qualify, which is not so. If she is accepted and stays in her social work job 10 years, she can get her balance forgiven and won't be on the hook forever. She can still be in it; she just won't have "maximized her forgiveness" because she earns too much to be in one of the income-based repayment plans.



KristopherFranzen
KristopherFranzen

Gabbyabi44 the same thing happened to me.  After I filled out the paperwork and had my loans transferred from my old loan servicer, which I liked, to myfed loan I was then told I had to choose an income based payment plan.  My original payment plan had me paying $185 a month and with the plan they had, in order to stay in the PSLF program it went to $555 a month.  I also figured out that if I made those payments, by the time my 120 payments were up I would have zero balance.  In order to figure out my income based plan, they asked for how much my wife and I make and how many people in our family.  That was it.  They didnt take into account all my other bills and how my payment went from $185 to $555 a month!!!!  So I had them put me back on my old plan and I am now out of the PSLF plan and stuck with this loan servicer who I am sure will find a way to screw me over in the coming years.  I feel like this is a scam, and seeing that its from the Government, it probably is.

pageroff2
pageroff2

I'm a resident physician with $400,000 in loans, but I'm not worried. During my 5 years of residency in a non profit hospital (qualify for PSLF), I can make minimal payments on IBR which is 10% on my $50,000/year resident salary. Then after residency, I'll find a job at another non profit hospital (which is easy to find as most hospitals are non profit) for another 5 years to finish up my 10 years in repayment. I'll have close to half a million in loans discharged (principle and interest) and get to enjoy my high six figure attending salary. Life is good when you game the system!


Only thing I regret is not borrowing more as my monthly payments is dependent on my current salary and not my loan balance.

gabbyabi44
gabbyabi44

Good article, but you failed to include another part of the PSLF program--the part where you have to make 10 years worth of monthly payments under a QUALIFIED repayment plan. Read the following from the govt's webpage explaining the PSLF program: 


"To maximize forgiveness under the PSLF Program, you should repay your loans on one of the income-driven repayment plans (Income-Based Repayment (IBR) Plan, Pay As You Earn Repayment Plan, or the Income-Contingent Repayment (ICR) Plan), which qualify for PSLF. 

Other PSLF-qualifying repayment plans are the 10-Year Standard Repayment Plan or any other repayment plan where your monthly payment amount equals or exceeds what you would pay under a 10-Year Standard Repayment Plan. 

Before selecting a repayment plan, it is important to understand the implications and costs of that decision. The longer you make PSLF-qualifying payments under a 10-Year Standard Repayment Plan, the lower the remaining balance on your loans will be when you meet all of the PSLF Program's eligibility requirements. In fact, if you make all of the required 120 qualifying payments under the 10-Year Standard Repayment Plan, there will be no remaining balance on your loans to be forgiven. 

Under the IBR, Pay As You Earn, and ICR plans, your monthly payment amount will likely be lower than under any of the other PSLF-qualifying repayment plans and your repayment period will likely be longer. Because of the longer repayment period, additional interest that will accrue on your loan, and the smaller monthly payment amount, you will be left with a higher loan balance that could be forgiven. However, if you ultimately do not meet the eligibility requirements for PSLF, you will be responsible for repaying the entire balance of your loan, including all accrued interest, unless you qualify for forgiveness under the terms of the IBR, Pay As You Earn, or ICR plan. I am a social worker who works for a non-profit. I make $50k a year with no dependents. "


Well...I'm a social worker who earns $50k/year (about $36k after taxes) with no kids or a spouse. I don't qualify for any of the the income-driven repayment plans because I "earn too much." I am currently on a 25-Year Repayment Plan because I cannot afford the $550/month payments I'd have on the 10-Year Standard Repayment Plan. If I were to be on the 10-Year plan, my $43k in loans would be paid off so I'd have no debt for the PSLF program to forgive. On my current 25-Year plan, I'm paying $240/month of which only $17 goes towards the principal (by the way, I only took out federal loans for grad school). It looks like I'll never be able to pay off my students loans unless I, 1) Marry a rich guy. 2) Have a bunch of kids so I'll qualify for an income-driven repayment plan (but god knows kids will be even more expensive. 3) Make the $550 monthly payments on a 10-Year plan and live like I'm seriously broke. To sum things up, it's pretty freaking hopeless!!! Maybe I'll just move to Mexico and forget I even have student loans in the first place. 

julietabbouli
julietabbouli

What should be truly offensive is the college industry and how much students have to take out in loans to afford it.

50millionplus1
50millionplus1

So many straw men in this article, it's officially a fire hazard.

brokev03
brokev03

This article is entirely off-base.  Government and NGO workers make *FAR* less income than their private-sector counterparts.  Government and NGO workers only look like they are doing well compared to the country when you count the millions of fast food workers in the averages for the private sector.  When comparing the same job at the same education level, private sector income always outperforms.  This loan program is a way to encourage talented, motivated graduates to pursue LOW-PAYING work in the public sector. As anyone in business knows, you have to pay for talent, and talent is what makes an organization successful.  Government and NGOs are no different.