February 25, 2019

Judge overturns changes to student loan forgiveness program by Education Department

WASHINGTON, Feb. 25, 2019 — In a case filed by the American Bar Association, a judge ruled Friday that the U.S. Department of Education improperly changed the terms of the Public Service Loan Forgiveness Program (PSLF) for some men and women who have dedicated their careers to public service. 

In a 54-page opinion, U.S. District Judge Timothy J. Kelly said changes to the eligibility requirements, made several years after the program began, were “arbitrary and capricious.” Kelly called one of the Education Department’s main arguments “nonsense” and said a series of internal Education Department emails “decimates” another argument.

Kelly ruled in favor of three individual plaintiffs who worked several years in public service and were initially approved for loan forgiveness, only to be notified years later that the approval was retroactively denied by the Education Department based on new rules.

“This decision recognizes the Department of Education has failed to implement the legislation properly,” said ABA Executive Director Jack Rives. “Our society depends on the dedicated efforts of public servants who accept lower-paid work, despite carrying large student loans. It is only fair that those workers be relieved of part of their loan burdens after 10 years of public service and 10 years of loan repayments, as this law promised them.”

The ABA and four public servants, represented by the law firm of Ropes & Gray, sued the Education Department and the education secretary in December 2016, alleging mismanagement of the PSLF program. The lawsuit detailed how the department changed eligibility requirements for work that was clearly “public service” after previously approving the same work, and after individuals had made major life decisions based on those prior approvals.

“The financial well-being of these dedicated public servants has been hanging in the balance for so long, in part because the Department of Education failed to acknowledge that it changed its interpretation of the relevant regulations without any notice whatsoever,” said Chong Park, partner at Ropes & Gray LLP.  “In its decision, the court rightly recognized this intransigence. It is our hope that the department will take seriously its responsibility to comply with the law when reconsidering the claims of eligibility, for these borrowers and others.”

The ABA claimed that the department and its contractor, FedLoan Servicing, hurt employees of some nonprofit groups by initially telling them they qualified for loan forgiveness, then reneging on those promises years later. Kelly agreed, ruling that the Education Department’s rule changes had “an immediate and significant impact on their ability to plan their careers and finances.”

The PSLF program, enacted in 2007 and signed into law by President George W. Bush, provides incentives for graduates to pursue full-time public service careers. It provides a mechanism to forgive student loan debt balances for men and women who make timely loan payments for 10 years while working full-time in public service jobs. The program broadly defines public service jobs as those providing “public interest law services,” “public education,” “public service for individuals with disabilities,” and “public service for the elderly,” among a variety of other categories.

The ABA is considering actions to take as a result of the ruling that denied the association’s claim as an institution. The judge ruled that only individual borrowers have rights and obligations under the PSLF law, not employers like the ABA. The judge also ruled against one individual plaintiff, concluding that the Education Department had not changed rules that applied to this plaintiff’s claim.

The case is titled American Bar Association v. United States Department of Education, case number 1:16-cv-02476 in U.S. District Court for the District of Columbia. The lawsuit can be downloaded here and the judge’s ruling can be downloaded here.

 

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