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Change to Public Service Loan Forgiveness Voided

By George Khoury, Esq. on February 28, 2019 | Last updated on March 21, 2019

The federal court for the District of Columbia recently ruled in favor of a few lawyers who were denied forgiveness for their student loans under the Public Service Loan Forgiveness program.

In short, the court held that the lawyers who were told by FedLoan Servicing that their employment qualified for the forgiveness program could not have that promise rescinded. Additionally, the court vacated the new standards that the Department of Education and FedLoan Servicing used to justify these denials, as it found the new standards to have been implemented arbitrarily and capriciously.

Just Not Fair

For three of the four individual plaintiffs in the case, the court explained that each had received notices that their employment and payment history qualified for Public Service Loan Forgiveness directly by FedLoan Servicing. Unfortunately, after the DOE's new standards on what employment actually qualified were put into effect, the plaintiffs all received updated notices explaining that they no longer qualified.

The court went into detail about how each of the lawyers' student debt actually increased due to their utilization of the program because they were on Income Based Repayment plans which failed to even cover the interest on the loans, so each year, the loan amounts actually increased. Effectively, after years of public service, diligently adhering to an IBR plan on the expectation that their loans would be forgiven, these plaintiffs owed even more money, and were told forgiveness was off the table.

The court's decision rests upon the Administrative Procedures Act, and the fact that the decision to change the standard for evaluating PSLF was a "final agency decision." While the DOE contended that the decisions on the individual plaintiffs PSLF were "interlocutory" and "subject to change," the court explained that the individual borrowers' reliance on the prior decisions rendered those decisions final.

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