The Employer Certification Process Under Public Service Loan Forgiveness: What It Is and How the American Bar Association Could Affect It

Anyone interested in earning Public Service Loan Forgiveness (“PSLF”), the government program that provides federal loan forgiveness in exchange for 10 years of full-time employment with a qualifying Public Service Organization (“PSO”), should be aware of the Employer Certification Form (“ECF”). The ECF is used to determine whether a borrower’s employer qualifies for PSO status. The form also documents the number of payments you’ve made toward forgiveness, so it is best to submit annually to ensure you stay on track.

Filling out the ECF is simple. An individual simply provides basic contact information and then submits the completed ECF to their human resources officer (or equivalent), who verifies their full-time employment status and then sends the form to the Department of Education for review. Once the ECF is processed, the Department of Education sends the form back to the employee with a determination on whether their employer is a PSO and how many months remain until a person is eligible for loan forgiveness. (More information about PSLF can be found here). Usually, this determination is correct, but what happens when it is not?

Unfortunately, the Department of Education does not have a formal appeals process for challenging employer determinations, and the Federal Ombudsman program—which was set up by the Department of Education to provide neutral arbitration for student loan issues—is not yet equipped to resolve issues related to PSLF.

This lack of a formal appeals process has become especially problematic in recent months after the Department of Education rescinded favorable determinations for some PSOs—years after the original decision in some cases. Individuals employed at the affected organizations, who often declined higher paying private sector employment and paid less on their loans as a result (PSLF operates under an income-driven repayment plan model where loan payments are commensurate with salary), have little recourse to recover the original determinations on which they relied.

In light of this practice, the American Bar Association (“ABA”) stepped in, filing a lawsuit against the Department of Education. In the complaint, the ABA demanded that the Department restore the ABA’s PSO; that the Department reverse its unprecedented rescission of all prior ECF approvals for borrowers of employed at the ABA; the retroactive application of the new interpretation; that the Department provide public notice as to its changed interpretation; and that the Department develop a formal process for borrowers to appeal adverse determinations going forward.

The complaint based much of its claim for relief on the assertion that the inconsistent determinations were the result of the Department of Education changing its interpretation of the regulatory definition of a PSO without notice. The regulation, 34 CFR 685.219, currently defines a PSO to include an organization that is registered as a 501(c)(3) or a private not-for-profit organization who engages in one of multiple public service fields, including public interest law. The ABA alleges—among other things—that this regulation was previously interpreted to include the ABA as an eligible PSO based on the government funded public interest law services and public education it provides. This is supported, the ABA says, by uniform approval of borrowers’ annual ECF applications while employed at the ABA, and similar approvals for borrowers at other nonprofit organizations. However, as of late, the ABA asserts that the Department of Education began interpreting the regulation as requiring the private entity to not only provide public interest law services, but the provided service must also be the “primary purpose” of the organization. Thus, the ABA proffers, this fresh interpretation of the regulation, without changes to the regulatory language, is a violation of § 706(2) of the Administrative Procedures Act (“APA”), and the 5th Amendment right to Due Process. According to § 706(2), changes in interpretations of existing regulations are prohibited if the change is (a) arbitrary/capricious and/or (b) the new interpretation is applied retroactively without authorization from Congress. A new interpretation is arbitrary/capricious unless the changing party provides (1) notice of the changed interpretation, (2) an explanation for the new interpretation, (3) good reasons for the new position, and (4) evidence that the agency has taken into account any serious reliance interests.

The ABA concluded that the Department of Education’s new interpretation of PSO, as defined in 34 CFR 685.219, was arbitrary and capricious because (1) the interpretation occurred without explanation and (2) the Department of Education failed to take into account the “serious reliance interests regarding retention and recruitment and the ability to obtain loan forgiveness that resulted from the prior interpretation and the certifications of PSLF eligibility.” Additionally, the ABA asserts that because the new interpretation of 34 CFR 685.219 resulted in the revocation of borrowers’ approved ECFs without authorization from the Higher Education Act (the authorizing statute for all PSLF regulations), the new interpretation was applied retroactively without authorization from Congress and thus is a second violation of §706(2) of the APA.

Finally, the ABA maintains that the Department of Education violated the constitution by bypassing the due process guarantees of the 5th Amendment. The 5th Amendment promises no deprivation of a property interest without due process, which at minimum requires notice and an opportunity to be heard prior to being deprived of said interest. As the Department of Education developed a new interpretation of existing regulations, which it then used to retroactively change determinations defining employers as PSOs without an appropriate appeals process in place, the Department of Education violated the 5th Amendment rights of certain individuals to due process before being deprived of their property interest in years of “certified PSLF-eligible work and loan payments.”

The ABA filed its complaint in December 2016. The Department has until March 23rd to answer, allowing additional time for the Department in light of the transition of presidential administrations. It may be a while before we see the results of this lawsuit. We will be sure to provide you with any substantive updates along the way. In the meantime, you can read the full complaint for more details on the case.

Equal Justice Works provides support to public interest attorneys, and helps law students learn more about all aspects of managing their student debt. We have a debt relief newsletter, free student debt webinars, an informative website, and a free student debt e-book, Take Control of Your Future.

Kenneth Strickland is the Student Debt Specialist at Equal Justice Works. Here, he works to ensure that public interest legal jobs remain accessible to all who desire them by engaging in education, outreach, and policy analysis centered around ensuring that an affordable legal education remains an option for everyone. Ken is a recent graduate from the University of North Carolina School of Law, and has worked with reputable public service organizations such as North Carolina Advocates for Justice, American Civil Liberties of North Carolina, and the North Carolina Poverty Research Fund.

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