A notoriously troubled federal loan forgiveness program for public servants will be getting a "major overhaul" during the Biden administration, and a teacher who successfully saw more than $130,000 in student loan debt erased after 12 years of payments detailed the administrative nightmare to Yahoo Finance.

“The main thing for me was the emotional toll of living with that debt for so long and feeling like the benchmark kept moving,” Kimberly Baker, an associate professor at the University of Northern Iowa, told Yahoo Finance in an interview. “I was doing all the things I was told to do.” 

The Public Service Loan Forgiveness (PSLF) program, created by Congress in 2007, enables government and nonprofit employees — from teachers to soldiers to firefighters and other public servants — with federally-backed student loans to apply for forgiveness after proof of 120 monthly payments under a qualifying repayment plan.

Stories like Baker's show how the PSLF program "is broken," Seth Frotman, a former Student Loan Ombudsman at the Consumer Financial Protection Bureau (CFPB) and current executive director at the Student Borrower Protection Center (SBPC), a D.C.-based advocacy group, told Yahoo Finance. “And it is time for bold, comprehensive action to deliver debt relief and right a decade of wrongs by the government and the student loan industry. Public service workers have done their part — now it is time for the administration to keep the promise of PSLF.”

PSLF bogged down by processing problems

The embattled PSLF program continues to yield an extremely low success rate — in the single digits for years — partly because many borrowers simply did not qualify. 

In 2018, Congress provided the Education Department (ED) with $700 million to create the Temporary Expanded Public Service Loan Forgiveness Program (TEPSLF).

As of April 30, the latest date for which federal data is available, both programs still have anemic outcomes: According to Federal Student Aid, PSLF had an approval rate of 2%. Only 3,458 out of 168,702 completed PSLF forms submitted met the requirements for loan forgiveness. TEPSLF had an approval rate of 3.4%, with only 224 forms out of 6,629 forms meeting the government's requirements.

Projections by the loan servicer handling the PSLF program also indicate that only 22% of borrowers are on track for forgiveness in the next five years, according to records obtained by the SBPC. 

Education Secretary Miguel Cardona promised to look into the matter. And earlier this month, more than 200 organizations representing millions of public service workers wrote to Cardona about fixing the PSLF program.

There seems to be a plan in place: On Friday, NPR reported that ED has planned to make a number of changes to the PSLF program, including the way it counts certain loans that are federally guaranteed but not owned by the government.

Baker's messy student loan journey: 'I was afraid to move forward'

Baker's experience revealed yet again how complicated the process can be, even for someone who diligently kept records of all the paperwork the government needed from her.

For more than ten years, Baker never missed a single student loan payment. (She shared documents with Yahoo Finance to verify her story.)

In 2009, Baker enrolled in a graduated repayment plan soon after she started working and began repaying her loans. She enrolled in auto-pay to make sure her payments were automatic. Her loan servicer changed multiple times over the years, but she was always on track, and she kept a spreadsheet of every single one of her payments, the date it was made, and the servicer it went to.

In 2016, Baker received more information more about the PSLF program and "first learned that I had received bad advice and that I was in the wrong repayment program,” she said. So Baker called her servicer and switched to the income-based repayment plan. But she was concerned that the switch would reset her clock, and she'd have to pay for another ten years.

In 2018, when Congress created the TEPSLF option for people like Baker who were initially using the wrong payment plan, she saw a glimmer of hope. 

“I was like, aha! I am going to qualify for that,” she remembered thinking. “I should have been at 10 years somewhere around late 2019.”

She called her loan servicer but was quickly told that she wouldn’t qualify. She also worried that if she applied for TEPSLF — and was denied — that her entire PSLF application would be in jeopardy and that she could lose the possibility of ever getting loan forgiveness.

“I was afraid to move forward,” Baker said. She had also just gotten married, and her household's combined income had doubled her payments on her student loans to over a thousand dollars a month. “A thousand dollars a month is a lot of money, it’s money that I can put towards retirement, I can use to help my family… so I got motivated to try to figure this all out.”

In March 2020, the Trump administration initiated an interest-free pause on federal student loans, giving Baker a moment to pause and take a deeper look at her application.

"The payment pause gave me the energy to try to start to figure this out,” she said, given that the pause removed the pressure of making the huge payments.

She also said she heard a podcast about someone who went through a similar experience and ended up getting their loans canceled through TEPSLF after jumping through multiple hoops. The story gave Baker the motivation to apply for loan forgiveness, she said, as it “kind of helped me prepare for the battle I might face.”  

She applied for forgiveness in April 2021 for her more than $131,000 in student loan debt. When she was denied loan forgiveness under the PSLF program, she was dismayed.

After applying, “within a couple of days, I got rejected, which I knew would happen. I didn't qualify for PSLF,” Baker said. “So then I applied for [TEPSLF] a couple days later. I get rejected again, with no explanation.” Her third application was also denied.

After multiple rejections and confusion over what she was doing wrong, Baker finally managed to get on the phone with a specialist at FedLoan Servicing, the servicer who managed the PSLF process, to identify what exactly the snag was: misclassified paperwork.

When her loan servicers had changed, five years’ worth of payment records had, on the surface, gone "missing" she explained. One servicer had incorrectly classified her payments as not made, even though their own records stated that Baker was on auto-pay — meaning that she had in fact made the payments. 

Another servicer did not split her loan payments evenly for two types of loans she owed, putting them all towards one loan, even though they intended to charge both evenly. 

“Again, it was showing up as missed payments,” she remembered being told, even though she had been paying all along.

The loan servicing specialist at FedLoan worked with her to fix these issues, and her application was sent forward to determine whether she qualified, again.

This time, she was certain she was on the path to forgiveness. 

One last hiccup remained, however.

'It shouldn't have to be this hard'

On July 26, Baker received a letter informing her that she had finally qualified for loan forgiveness under TEPSLF. 

And since she had in fact qualified in November 2019, Baker also got payments back from December 2019 to March 2020 — she had made them in addition to her 120 required ones.

On August 20, Baker received a call from FedLoan telling her that her loans had been forgiven and that they were going to refund extra payments. Within two weeks, Baker got her refund, and her account balance said she owed $0.

“I've had this hanging over me for so long,” Baker recalled thinking. “It took me awhile before I was like, 'Oh my gosh, that's really happening. I am not paying a thousand dollars a month for the loans for the next five years. This is amazing.'”

However, a few weeks later, on September 7, FedLoan sent her another letter telling her that she actually didn’t qualify and that the forgiveness call was a mistake. 

Baker called FedLoan and was told that there was no reason why that letter was sent and that her balance was zero and her account was closed. 

“My worst fear would be that if for some reason … that cancellation was canceled, and all that debt came back,” said Baker. “We bought a house before we were married and only in my spouse's name because I can’t get a mortgage.”

She tweeted about her situation, expressing confusion, and soon, someone from ED’s Ombudsman office reached out to investigate the matter. The whiplash was significant, she said: “I went from celebrating to [checking my] balance every day just to make sure."

Fortunately, in late September, ED followed up with her to tell her that in fact her cancellation had gone through and her balance had actually gone from around $131,883.75 to $0.

While Baker did end up debt-free, her Kafkaesque PSLF journey highlighted how the PSLF system is an extreme challenge to navigate — even for someone who kept all the right records and made all her payments — since she was blamed for missing paperwork that was no fault of her own.

"I am thrilled that Dr. Baker was among the roughly 2% of applicants who have successfully navigated the PSLF gauntlet,” Louise Seamster, an assistant professor at the University of Iowa who has written about student loan issues, told Yahoo Finance. “But it shouldn't have to be this hard.”

Seamster added that “the confusion around Dr. Baker's case raises real questions about how the system is being managed. I hope anyone who has had a difficult time with this program will submit a comment to the federal government… as they are currently soliciting people's experiences."

Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected] Follow her on Twitter @aarthiswami.

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