The Department of Education acknowledged Thursday that it could have done a better job of helping the tens of thousands of teachers and other public sector employees who were promised loan forgiveness under a government-funded program that ended up rejecting 99 percent of applicants.
“For 10 years you think you’re on this path and then you find out it’s all a joke,” said Kelly Finlaw, a 36-year-old art teacher in New York.
In 2007, Congress started the Public Service Loan Forgiveness (PSLF) program to help ease the burden of student loan debt and incentivize workers to go into public service. The text of the law was clear: Employees of qualifying public service employers who received direct federal loans and were in income-based repayment plans could, after 10 years of regular payments, have the rest of their loans forgiven.
However, just 1 percent of those applicants were accepted, according to a recent report by the Government Accountability Office, even after Congress streamlined the process in 2018 for denied applicants.
One major obstacle for borrowers has been the “confusing” process that requires them to apply first for one program for which they’re ineligible and then apply for another, the GAO report found.
At a Congressional hearing for the matter on Thursday, the Department of Education acknowledged the intricacies of the application process.
"We can do a better job of explaining those complicated requirements to borrowers," said Jeff Appel, director of policy liaison and implementation in the DOE's Office of Federal Student Aid.
That admission comes too late for the thousands of teachers, nurses, law enforcement officers, and other public sector workers for whom 99 percent of loans were rejected.
For years, Finlaw made steady payments, contributing $30,000 towards her total balance of $120,000. Her loan servicer confirmed that she was on the right path to loan forgiveness.
After 10 years, she got a letter in the mail. She thought it was going to tell her that the rest of her loan was paid off, as per the program. She had dreams of escaping the renter trap and buying her own place near the school where she loved to work.
She sat down with her roommate to open it together. “I thought 'This is it,'” she told NBC News. Then she read the letter. It told her that because one of her loans wasn’t the right kind of loan, she didn’t qualify.
To make matters worse, after interest is added, she still has $120,000 to go to pay off her loan.
“I’m not going to say what I said, because it was not nice,” said Finlaw.
Now she is one of several teachers suing Department of Education Secretary Betsy DeVos over her agency’s administration of the program.
Mike Giambona, a 42-year-old middle school psychologist from California, told a similar tale.
“I called the company servicing my loans and they told me that my loans were eligible, and I just had to continue to work in public service for 10 years,” he told NBC News.
Then one day he got a letter in the mail from his servicer, advising him that his loan wasn’t the right kind of payment plan and he didn’t qualify. He would be on the hook for the entire amount.
“It was almost like an out-of-body experience,” he said. “I’ve had so many conversations with so many people over the years. I did everything asked of me. If someone had told me I needed to make a change, I would have.”
Over and over again, rejected borrowers tell a version of the same story: Their loan servicer, one of several firms subcontracted by the Department of Education, told them everything they were doing was fine, as long as they kept making regular payments.
Detractors of the program say it qualified too many workers and could have had the unintended consequence of encouraging borrowers to take on more debt than they could afford.
"The high denial rates in PSLF are by Congressional design, not by accident or failed implementation by the Department,” Education Department Press Secretary Angela Morabito said when contacted by NBC News.
NBC News reached out for comment to several of the major loan servicers: PHEAA/FedLoan Servicing, Great Lakes, Navient, and Nelnet.
“We provide complete details on the various repayment options, deferment/forbearance options and loan forgiveness programs, including teacher loan forgiveness and public service loan forgiveness, on our website,” Paul Hartwick, a spokesperson for Navient, told NBC News.
FedLoan, Nelnet and Great Lakes referred requests for comment to the Department of Education.
“This will cost the federal government multiple billions of dollars," said Richard Fossey, a professor of education law and policy at the University of Louisiana at Lafayette. "It's the governmental equivalent of the Titanic hitting an iceberg."
The DOE said Thursday it agreed with all recommendations for improvement made by the watchdog GOA, and has already begun to implement other changes.