U.S. Markets close in 4 hrs 22 mins

Judge Sides With ABA in Public Service Loan Fight—Mostly

Some federal loan borrowers who were denied access to the Public Service Loan Forgiveness program could get a second chance to see their educational debt erased thanks to a closely watched lawsuit brought by the American Bar Association and several of its employees.

In a case expected to have wider implications than for just ABA employees, a federal judge Feb. 22 largely sided with the plaintiffs, who worked at—or hoped to work in—the ABA’s pro bono programs or other public interest organizations. Those plaintiffs had been informed by the U.S. Department of Education that they were not eligible for Public Service Loan Forgiveness because the ABA or their other organizations were not qualified employers. Several of the plaintiffs were initially told by their loan servicers that they qualified under the program, only to later be denied.

Judge Timothy Kelly of the U.S. District Court for the District of Columbia ruled that the Education Department had changed its eligibility requirements and interpretations midstream, without notice and that it must reconsider the applications of three of the four plaintiffs who were denied access to Public Service Loan Forgiveness.

“These changes were arbitrary and capricious because, in adopting the new standards, the Department failed to display awareness of its changed position, provide a reasoned analysis for that decision, and take into account the serious reliance interests affected,” Kelly wrote.

The Education Department did not respond to requests for comment Monday.

Chong Park, a partner at Ropes & Gray who represented the ABA, said that the decision has wider implications than just the ABA and its employees. It appears that any applicant for loan forgiveness who was denied under the so-called “primary purpose” and “school-like setting" provisions of qualifying employers could have those decisions reconsidered by the Education Department. He said Monday that it's unclear how many people fit that bill.

“I think the judge recognized the significant practical and financial consequences and investment these public servants make when pursuing this course of action—to be part of the Public Service Loan Forgiveness Program—and that the department’s actions had a significant impact not only on these plaintiffs but other plaintiffs,” Park said. “I think the judge’s ruling set it back to first principle: You can’t just change these rules when people rely on them.”

Kelly’s opinion was not a wholesale win for the ABA, however. He ruled that the ABA cannot be designated as a qualified public service employer as this stage because the ABA is not a federal loan borrower itself. The ABA had sought that blanket designation to ensure that employees working on public service matters would have no doubt as to their eligibility for loan forgiveness, which would also help the ABA recruit for those positions.

“The ABA would definitely prefer to be able to secure uniform eligibility for our employees. We think that’s the better course of action,” said ABA executive director Jack Rives. “But the remand to the Department of Education for three of the four individual plaintiffs does seem to benefit every ABA employee who would be affected by the department’s new interpretation of the legislation.”

The ABA is still analyzing the ruling before it decides whether or not to appeal, Rives said. The suit was filed in 2016.

Congress enacted the Public Service Loan Forgiveness Program in 2007 as a way to incentivize people to embark on those kinds of careers, which typically come with lower salaries than the public sector. Federal loan borrowers who work in qualified positions and pay their loans can apply to have the remainder of their debt forgiven after 10 years. But the program has been plagued by confusion. Borrowers don’t get a final decision on their eligibility until they apply for forgiveness at the 10-year mark.

But the Education Department introduced an employment certification process under which borrowers annually report their jobs and employers to ensure they are on track to qualify. Most of the individual plaintiffs initially were informed that their employment qualified under the program, with the Education department later telling them that their jobs did not, in fact, qualify for loan forgiveness.

The plaintiffs alleged that the Education Department improperly revised two provisions pertaining to eligible employers: The “primary purpose” provision that says the focus of the employer must be public service regardless of the focus of the individual position; and the “school-like setting” standard, that says jobs focused on public education must be performed in a "school-like setting.” The plaintiffs were denied under both provisions.

“We don’t know whether the department believed they had made an initial mistake or if there was a deliberate decision to change direction and policy,” Park said of the Education Department’s actions. “We do know—and the judge did rule—that when the department reversed course it stripped away eligibility determinations that they had previously approved, in some case, more than once.”

While three of the four individual plaintiffs will have their applications reassessed by the Education Department—barring any appeal—Kelly ruled that the fourth plaintiff is not entitled to a reconsideration. That plaintiff worked for the Vietnam Veterans of America.

Plaintiff Kate Voigt, whose application Kelly ruled must be reconsidered, called the decision a "step in the right direction."

"The decision confirms what I have believed all along: that the Department of Education was acting inappropriately and unfairly with respect to fulfilling its promises to me and other borrowers," she said. "This program was meant to encourage people to take public interest jobs, and it is my hope that the Department of Education decides to do the right thing for the people who have dedicated their careers to public service.”