Most nonprofit employees need not worry about their eligibility for a federal student-loan-forgiveness program aimed at encouraging people to work in “public service,” experts say, despite a legal filing by the Department of Education that sowed confusion among many borrowers.
The program promises debt relief for people who work in public service — for example, for charities or in government — for 10 years. Borrowers can fill out a form to get a letter confirming their eligibility as they work toward meeting the program’s requirements, which can be tricky to navigate due to a number of restrictions.
Uncertainty about the program heightened with a suit filed in December by four lawyers who complained that the Department of Education reversed a prior approval of their eligibility, saying their jobs no longer fit the department’s definition of public-service employment. Concern mounted further when the department filed a legal brief saying previously issued certification letters may not be binding.
The situation worried many charity employees who are counting on the program to ease their debt burden.
“I’ve been nervous about the uncertainty all along,” said Amy Boyle, assistant vice president at New York City Housing Development Corporation, who has received numerous confirmations of her eligibility. “The idea that letter shouldn’t be relied upon in any way is really disconcerting.”
However, because the plaintiffs in the lawsuit worked for non-501(c)(3) organizations — including Vietnam Veterans of America, a 501(c)(19), and the American Immigration Lawyers Association, a 501(c)(6) — most qualifying borrowers who work for traditional nonprofits don’t have cause for concern, said Natalia Abrams, executive director of the advocacy group Student Debt Crisis.
She counseled nonprofit workers to continue making student-loan payments and applying for approval letters: “If you dot all your i’s and cross all your t’s, you should be fine.”
A Department of Education spokesman declined to comment for this story.
Job Incentives
The loan-forgiveness program, established in 2007 with bipartisan support, is set to kick in for the first set of borrowers on October 1.
One of the eligibility requirements is full-time employment at a nonreligious public-service job. More than 8 percent of the U.S. work force, or about 10.8 million people, met this criteria in 2010 because of their employment at nonprofits, according to an analysis by the U.S. Consumer Financial Protection Bureau.
But because of other eligibility requirements, which include having borrowed through the federal Direct Loan Program and having a specific repayment plan, the pool of qualified borrowers is much smaller.
And, as the lawsuit demonstrates, there is some misunderstanding about which jobs count.
The loan-forgiveness program requires participants to make 120 on-time, qualifying monthly payments, which means it will take borrowers a minimum of 10 years to become eligible for loan forgiveness. This slow pace was designed to entice graduates to pursue and sustain public-service careers by offering debt relief to compensate for the relatively small paychecks most schools, nonprofits, and government bodies offer employees.
“In the nonprofit sector, we’re frequently getting lower salaries than we could get somewhere else,” said Jamie Smith, executive director of the Young Nonprofit Professionals Network. “This really is a tool for those of us in the nonprofit sector to make this work and [be] at least somewhat more financially sustainable for us in the long term.”
There’s evidence that the law is working as intended. In a survey by Equal Justice Works of law students and lawyers, most of the latter working in public-service jobs, more than 90 percent of respondents said they would be less likely to commit to or continue in such employment without the loan-forgiveness benefits, said Isaac Bowers, director of law-school engagement and advocacy for the nonprofit.
Built-In Anxiety
Nervousness about the program stems from the fact that borrowers cannot officially apply for loan forgiveness until they have made all of their 120 required repayments. In the meantime, experts encourage them to regularly submit employment-certification forms verifying that they work at qualifying public-service jobs.
Keeping up with these records is “imperative” for borrowers because it “will save them a lot of time when it comes to apply for forgiveness,” Mr. Bowers said: “They shouldn’t think of this as just for their peace of mind.”
Ms. Boyle files certification forms every six months to a year in preparation for applying in the future. If the program works as she expects, and her income stays the same, her loan-payoff date will be July 2022, when the government will forgive more than $84,456 of her student debt. Without the program, she’d be paying back her loans until 2031.
Ms. Smith anticipates that $25,000 of her $60,000 in debt will be forgiven if all goes according to plan. But her case is complicated, she said, and indicative of the confusion surrounding the program. She has spent seven years working in different jobs for what she considers to be the public interest. But it’s possible payments she made during only five of those years will count toward the program because of the law’s definitions regarding public-service work, and she has certification forms for only three years.
The possibility that the Department of Education may invalidate those forms has made Ms. Smith, and many other nonprofit workers, less confident that their gamble of accumulating debt to work in the charity world will pay off.
“The latest lawsuit and uncertainty is not the first time I’ve thought, ‘Maybe I need to come up with a new plan,’ " she said.
Nonprofit employees who believe they have been wrongfully denied eligibility should file complaints in writing with the Consumer Financial Protection Bureau and contact FedLoan Servicing, the federal loan provider, to request a new audit, Ms. Abrams said.
Threats to Talent Pipeline
Because of the law’s explicit reference to 501(c)(3) organizations, the circumstances that inspired the lawsuit are unlikely to pertain to people who work for those nonprofits, Ms. Abrams and Mr. Bowers agreed. That hasn’t stopped charity employees from calling experts to seek reassurance.
And while Ms. Smith has heard from plenty of worried individuals, she said she has been disappointed about the silence from nonprofit leaders and associations on the topic. She believes the fate of the loan-forgiveness problem is tied to larger labor and compensation issues in the charity world, like the fact that nonprofit work depends heavily on government subsidies in the form of student loans and programs like AmeriCorps.
“I do not hear enough nonprofits clamoring and realizing, if these things go away, what that means for their work force and their talent,” she said.
Erosion of the program itself, or of people’s faith in it, could weaken the employment pipeline that feeds nonprofits, Ms. Smith said. Organizations have a lot to lose if experienced employees like Ms. Boyle decide that public-service loan forgiveness is too risky.
“It’s definitely been a factor I’ve been considering as I’ve made each step in my career,” Ms. Boyle said.
