California AG sues DeVos over troubled public service loan forgiveness program

This story has been updated include comments from the Department of Education.

California Attorney General Xavier Becerra is suing Education Secretary Betsy DeVos over a roundly criticized loan forgiveness program designed for public service workers.

The lawsuit alleges that the Education Department (ED) is “flouting Congress’s clear and repeated instructions to provide student loan debt relief to public servants” and making loan forgiveness “virtually inaccessible” through a “convoluted application process” for these borrowers.

“College graduates who put in a decade of hard work and made timely payments on their student loans earned their [temporary public service] loan forgiveness,” Attorney General Becerra said in a statement. “But Education Secretary Betsy DeVos chose to ignore all of that. Today's lawsuit reminds Secretary DeVos that she is not above the law.”

Becerra added that DeVos “is accountable to these college graduates who followed the rules and deserve better, especially amidst an economic crisis of historic proportions.”

Anchor Maria Bartiromo interviews Education Secretary Betsy Devos on February 20, 2020 in New York City. (PHOTO: John Lamparski/Getty Images)

Amid the coronavirus pandemic, this “mismanagement” of the loan forgiveness programs to public servants “is shameful and illegal,” the lawsuit stated.

In response to the lawsuit, U.S. Department of Education Press Secretary Angela Morabito argued that the loan forgiveness program was problematic because it was poorly designed by Congress and blasted Becerra.

“This is yet another political stunt by an activist state attorney general hoping to curry favor with left-wing activists,” Morabito said in a statement provided to Yahoo Finance. “We have said it before, and we’ll say it again: The PSLF program needs a permanent fix. When the PSLF program was written more than a decade ago, the Department provided technical assistance to Congress and made Congress aware that only a small fraction of borrowers would qualify because of the way they wrote the law.”

With regards to the temporary expanded program, she added: “The Temporary Expanded PSLF opportunity didn’t fix any of these problems. The Department must implement laws as they were written by Congress.”

PSLF, TEPSLF explained

The Public Service Loan Forgiveness (PSLF) program was created in 2007 by Congress to encourage students to enter public service jobs, such as teaching, firefighting, law enforcement, public defenders, family and child services employees, and some medical workers.

The promise made for undertaking such jobs would be that after they made 120 on-time loan payments (or 10 years’ worth), they’d have the remaining balance forgiven. 

In 2017, when the first wave of applicants actually applied for the forgiveness, and they were denied en masse — ED was reported to have denied 99% of all applicants. One of those applicants, Kelly Finlaw, an art teacher in New York City, spoke about her experience in a Yahoo Finance podcast.

Congress gave ED an opportunity to fix the situation in 2018, creating a secondary program called Temporary Expanded Public Service Loan Forgiveness (TEPSLF).

But two years later, ED continues to have a 94% rejection rate.

March 2020 data from ED reveals that 29,728 requests were made for TEPSLF, and around 6% of requests were approved. The average balance discharged was $42,943.

As of April this year, approximately 150,000 borrowers applied for PSLF, the original program. Roughly 1.7% of applications were approved. The average discharged amount was $66,000.

The lack of implementation, the lawsuit states, means that DeVos and ED have violated the Administrative Protective Act by failing to implement TEPSLF.

Despite many applicants completing the necessary requirements to qualify for the forgiveness, “nearly all of them have had their applications denied.” 

California Attorney General Xavier Becerra outside the US Supreme Court in Washington, DC, November 12, 2019. (PHOTO: SAUL LOEB/AFP via Getty Images)

The lawsuits keep coming

DeVos has faced a number of lawsuits since taking the helm of the department. 

On this issue of loan forgiveness, aside from Becerra, the American Federation of Teachers has also filed a lawsuit on the PSLF’s shortfalls. 

At the same time, this is also not Becerra’s first legal action against one of the longest-serving cabinet members of the Trump administration. 

In March this year, he sued the department for “illegally rescinding” a 2014 rule called “gainful employment” that was designed to protect students against predatory educational institutions. 

Becerra had also previously sued DeVos in 2017 — along with 18 other attorneys general — alleging that she illegally delayed the implementation of the 2014 rule.

The California AG had also sued in August last year after DeVos revised a mechanism that defrauded students of predatory institutions could rely on for debt relief. 

Congress passed a resolution to reset back to Obama-era rules, overriding DeVos, but President Trump vetoed the rollback legislation

Aarthi is a writer for Yahoo Finance covering student debt and higher education. Follow her on Twitter @aarthiswami

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