The student loan debacle

When I started studying the financing of law schools in particular and higher ed in America in general a decade ago, I was struck by how many institutions were already making the then-four year old Public Service Loan Forgiveness federal program an explicit part of their pitch as to why their eye-popping tuition numbers were actually quite reasonable and affordable, if you just looked at them the right way.

At law schools, the pitch was if when you graduated you got a job in the public sector — didn’t you say in your personal statement you were all about helping people and stuff? — then after just 120 easy monthly payments, based not on the actual amortization of your admittedly high loan balances but on your ability to pay, your debt would be wiped clean. Not only that, you wouldn’t owe any taxes on the forgiven amount, as is normally the case when a legally enforceable debt is forgiven.

In the law world, the most public sectoresque of all jobs is being a lawyer in the military. These people are active duty officers, who can and are shipped off to do law talking in whatever actual war zones the Blob has decided must continue to be active so that its membership can continue to get high end appliances installed in remodeled northern Virginia kitchens. Furthermore, they are subject to military discipline if they miss any loan payments, including potentially losing their security clearances. Further furthermore, they’re like actual litigators, so they know how to navigate the bureaucratic maze of the PSLF program. So at least these people are getting their loans forgiven, right?

Lesley Stahl: Heather, you were in Afghanistan for a year?

Heather Tregle: Yes.

Lesley Stahl: So did that year count toward your 120 months?

Heather Tregle: Half of it did. 

Army JAG Major Heather Tregle, mother of two, doesn’t know why those six months didn’t count. She always stayed on top of her loan, even when she was in warzones. Like when she was in Kandahar and noticed her loan servicing company suddenly hiked up her payments. 

Heather Tregle: So I spent days, because when you’re in Afghanistan, you only can call for 20 minutes at a time–

Lesley Stahl: You’re calling from over there?

Heather Tregle: Correct. So you had to use a morale line to call. And it cuts off after 20 minutes. So I would wait on hold and try to speak to them– and get it all sorted out. And then tell them, “I am calling from Afghanistan. Can you please give me a number that I can just call you back– that I don’t have to wait on hold?” And they couldn’t do that– . . .

Seth Frotman: The Public Service Loan Forgiveness program was created because the country was desperately worried that student debt was going to stop America’s best and brightest from entering critical fields like the military.

But the rules drive them crazy – like making them chase after their commanders for their signature to verify that they’re even in the military. 

Seth Frotman: This is where the system breaks down. Where service members are told “You’re not eligible because we don’t think you got the right officer to fill out your form.” Or, “You may have found the right officer, but they forgot to date the form.”

Lesley Stahl: Oh, come on.

Heather Tregle: They make it more difficult than it needs to be. 

Major Tregle thought she did everything right to qualify: She had the right loan, right repayment plan. She can follow the fine print, afterall, her title is chief of complex litigation for the Army’s prosecutors. So after nine years of paying, she confidently started filing the necessary paperwork.

Heather Tregle: I should have been about 12 payments away from 120 at that point. And they said that I had only paid 12 qualifying payments. 

Lesley Stahl: They’re telling you that your nine years of monthly payments amounted to one year. 

Heather Tregle: Yes. So I obviously called them and said, “I don’t understand. I have been in auto-payment the entire time, so you guys take my payment when it’s due and the amount that is due.” And the woman looked through my account and she says, “You may have an issue that we know is an issue where the auto-debit takes the payment but one penny short of what is actually due so it doesn’t count.”

Lesley Stahl: Woah, woah, woah. What?

Heather Tregle: So it’s a known problem that through the auto-payment, it’s not– it doesn’t take the full amount due. It takes one cent shorter than it should.

Nobody’s ever told me if that is in fact what was wrong with those payments. That was just something the servicer said on the phone that day of, “Well, this is a known problem.”

Thank your for your public service, Heather!

This combination of Bleak House and The Trial is the way the entire PSLF program operates: according to the government’s own statistics, only 5,500 of the millions of borrowers who are technically — very technically apparently — eligible to have their debt discharged under it have actually gotten their debts discharged.

As for the rest they are expecting a judgement, on the day of judgement, although they cannot be permitted to pass the first gatekeeper at this time.

In its lumbering cautious way, the Biden administration is trying to do something about this mess: apparently the government is about to announce a major overhaul of the PSLF program.

From the standpoint of both economic efficiency and rough social justice, the best thing to do would be for the federal government to simply forgive all $1.6 trillion in outstanding federal student loan debt. Essentially none of this debt is currently getting paid back anyway:

Only one percent of all outstanding Direct Loan dollar balances are currently in repayment status, consisting largely of customers who have opted out of the CARES Act payment pause. More than 23 million Direct Loan borrowers with outstanding loans of about $938 billion are now in forbearance status, and more than 99% of these balances are in the special CARES Act forbearance.

The government stopped collecting student loan debt a year and half ago, and cats didn’t start living with dogs, Ben Shapiro wasn’t forced into a gay trans wedding, Charles Koch was still worth many many billions of dollars etc.

I suspect “moral hazard” is one of those things that largely exists only in Econ 101 textbooks rather than in the real world, so-called. Let’s run a big experiment and find out!