David R. Jones (137830)
David R. Jones Credit: Contributed

The staggering $1.7 trillion student loan debt crisis in the United States is a ticking time bomb with the potential to blast the nation’s economic recovery back to the last recession, or worse. Absent federal action to extend the COVID-19 pause on federal student loans and interest payments or provide other form of relief or cancellation, borrowers will be on the hook to pay those loans come Oct. 1.

Here in New York, approximately 2.4 million people owe more than $98 billion in student loan debt, with low-income borrowers, first generation college students, older adults, and women – particularly Black women – most financially burdened. According to a report by the American Association of University Women, Black women carry the highest student loan debt of any racial or ethnic group. Black women also repay their student loans at a slower rate compared to their peers and struggle more to meet essential expenses because of this debt.

Getting control of this crisis will be a factor in ensuring that New York’s and indeed the nation’s economic recovery is racially inclusive and equitably spread across incomes and demographic groups, and that it not bypass those most in need of assistance.

One student debt relief program has been attracting a lot of scrutiny: the federal Public Service Loan Forgiveness (PSLF) program. Created in 2007, PSLF is premised on incentivizing people who might otherwise pursue more lucrative fields after obtaining advanced degrees to instead consider careers in public service. It allows those who work in the public sector, such as educators, nurses, nonprofit professionals, and members of the armed forces, to have their student loans forgiven after making qualifying payments for ten years.

A noble idea, certainly, but for years the program has been plagued by loan servicer misconduct. Testimony at last week’s U.S. Senate Subcommittee hearing confirmed this, offering a bleak picture for those hoping to have their loans forgiven through PSLF. NYS Attorney General Letitia James, whose office has brought legal action against loan servicers, for-profit colleges, and rogue lenders, said a lack of comprehensive federal standards has allowed servicers to place profit before the best interests of borrowers. “It is imperative that we create safeguards that protect students from servicer misconduct, especially students whose work and commitment to the public good benefit all of us,” she noted.

According to a Consumer Financial Protection Bureau report, servicers have “failed to properly certify qualifying PSLF employment, improperly allocated monthly payments, and incorrectly calculated payment amounts.” Similar findings of servicer noncompliance have been leveled by the USDOE Inspector General.

“A big part of the problem is that the federal government turned the program over to a private company,” said Randi Weingarten, President of the American Federation of Teaches, in her testimony before the subcommittee. “Until recently, they faced no meaningful consequences for its failures.”

FedLoan, also known as the Pennsylvania Higher Education Assistance Agency (PHEAA), one of the nation’s largest servicers with nearly 9 million student loan accounts, took a shellacking at the hearing. In 2019, Attorney General James’ office filed a lawsuit against FedLoan alleging that it failed to properly administer the PSLF program, contributing to a high rate of rejection for PSLF applications. Sensing that Congress was moving to hold servicers accountable, FedLoan announced last month that it was getting out of the federal loan servicing business.

That’s small consolation to borrowers like Connie Hines, 56, of Bedford Stuyvesant Brooklyn, who said FedLoan never informed her of available repayment options on her nearly $200,000 student debt. In fact, FedLoan threatened to garnish her wages after she missed a series of payments while looking for work.

“They really scared me,” said Ms. Hines, a supervisor with a nonprofit that finds employment for the homeless. “I was told my only option was forbearance.” Borrowers in forbearance are prevented from making payments that qualify for PSLF. Now Ms. Hines is also concerned about potential mistakes when her loan is transferred away from FedLoan.

Joean Taitt, 55, left a career in banking to pursue her passion: helping children with special learning needs. In 2020, she completed her masters’ degree in early childhood education. Today she works as a program manager for a South Bronx-based nonprofit children’s mental health clinic.

“FedLoan never told me about PSLF, or IDR (income-driven-repayment),” said Taitt, who has more than $280,000 in student debt. “They just kept deferring me, and the loans kept building and building.”

Fortunately, help was available. Like Ms. Hines, Ms. Taitt had her loans consolidated into an affordable repayment plan with the help of ED-CAP, a free education debt consumer assistance program my organization created, with state support, to assist both federal and private borrowers manage their debt. Before they sought help from ED-CAP, no one had explained their repayment options or eligibility for PSLF to either woman.

While both are anxious about resuming payments in the fall and about FedLoan’s transition, they are hopeful that the Biden Administration and PSLF will save them from a future of debt and financial uncertainty. Their situation is not unique. Addressing this crisis is a must if we are to achieve an equitable recovery.

David R. Jones, Esq., is President and CEO of the Community Service Society of New York (CSS), the leading voice on behalf of low-income New Yorkers for more than 175 years. The views expressed in this column are solely those of the writer. The Urban Agenda is available on CSS’s website: www.cssny.org.