Celebrating 10 years! 2007-2017

Sophisticated Consumers/Borrowers?

At least according to one judge, law schools have an inalien 6figuremistake04/10/17
The sophisticated consumer decision is BS. But don't draw a onehell04/10/17
At this point, it would be more of an annoyance for me if th finklebots04/10/17
I agree with onehell that many of these articles on the topi thirdtierlaw04/10/17
The news coverage is a double-edged sword for me, because pe onehell04/10/17
I think the focus is also on doctors since apparently some m downwardslope04/10/17
Correct. A doc who knows what he's doing can easily get PSLF onehell04/10/17
Yeah, I'm not surprised the media is distorting the ramifica 6figuremistake04/10/17
It is broader than just c3/gov't, but if it is not a c3 or g onehell04/10/17
Why can't people sue for detrimental reliance if they were t fettywap04/10/17
They can, and the ABA filed a lawsuit on behalf of their emp onehell04/10/17
"Frankly, they should have known better." ... because the jeffm04/10/17
Not the borrowers, the ABA which marketed PSLF to its employ onehell04/10/17
I know. I was adding emphasis to OP's point. If anyone oug jeffm04/10/17
a truly sophisticated borrower would have his lawyer negotia defensivelawyer04/10/17
6figuremistake (Apr 10, 2017 - 9:18 am)

At least according to one judge, law schools have an inalienable right to distort their employment figures because prospective law students are "sophisticated consumers". I wonder if the courts will also hold that it was fine for the DOE and their loan management companies to provide misleading information about loan forgiveness and then fail to forgive those loans. Glad I was "sophisticated" enough this time not to trust the feds to bail me out and just paid off my own loans:

https://mobile.nytimes.com/2017/04/07/your-money/student-loans/panicked-borrowers-and-the-education-departments-unsettling-silence.html

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onehell (Apr 10, 2017 - 10:49 am)

The sophisticated consumer decision is BS. But don't draw a false parallel between it and the recent PSLF controversy, which has to do with people who worked at nonprofits which are not 501c3s, but rather lobbying/trade association groups like a c6 chamber of commerce. Those people never should have been approved in the first place and while it may be unfair to them as individuals for DOE to rescind the letters the servicers sent them that indicated approval, it does not signal that PSLF should not be trusted. The people who work at real nonprofits and government agencies are in no jeopardy and the coverage that is causing them to assume the government will not keep its word may cause a lot of people to pay many thousands more than they should, just because journalists have not taken the time to truly educate themselves on the issue.

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finklebots (Apr 10, 2017 - 9:56 am)

At this point, it would be more of an annoyance for me if the rescinded PSLF. By the time my kids are ready for college, my only consideration will be cost. Also, it will be funny to see the schools trying to keep out the pitchfork armies of former students.

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thirdtierlaw (Apr 10, 2017 - 11:24 am)

I agree with onehell that many of these articles on the topic missed the point. If you work at a 501(c)(3) you'll be okay... unless Trump/Congress changes the rules. I do agree half agree that people should be able to rely on the DOE's letter. It seems shady to create a program where you can write and find out if your payments are qualifying or not. Be told that they are qualifying and then 9 years later they say, "haha just kidding."

Luckily it doesn't affect me either way. Though I'm happy to see as many articles, even ones misstating the problem as possible. Maybe it'll put student loan reform higher on the priority list. See if Trump is telling the truth or not about implementing a 12.5%/15-year forgiveness plan. Not as good as PSLF but much better for everyone else.

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onehell (Apr 10, 2017 - 12:26 pm)

The news coverage is a double-edged sword for me, because people are anything but sympathetic when it comes to the plight of lawyers. The student loan debate previously has been focused almost entirely on undergrads. They get a sympathetic ear, especially if they are from low socioeconomic status backgrounds and got suckered in by the siren song of some predatory for-profit school. That kind of coverage is positive and could lead to reforms that actually benefit students. But if the eye of sauron focuses specifically on lawyers, the "reforms" could be negative for students, so I kinda like that PSLF (and IBR, and the unlimited forgiveness potential that exists when you combine IBR with GradPLUS) has flown under the radar.

The ABA's action against DOE on behalf of its employees is what is drawing the coverage. Think of how that headline could look: "Lawyers sue, demanding taxpayer bailout for working at lawyer lobbying group." That's not going to attract the kind of attention we want.

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downwardslope (Apr 10, 2017 - 12:49 pm)

I think the focus is also on doctors since apparently some medical facilities may not qualify and they tend to be the biggest beneficiaries of the PSLF programs. So many hospitals are non-profits and when all is said and done, they can start out with $300k when they start repayment.

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onehell (Apr 10, 2017 - 1:33 pm)

Correct. A doc who knows what he's doing can easily get PSLF despite a virtual guarantee of making big bucks, because of your temporarily low income during residency and the fact that most teaching hospitals are c3 nonprofits. Most doctors are pretty bad with money so they don't understand this system and just defer their loans throughout residency, but the ones that do figure it out stand to get a massive windfall because of the way residencies and fellowships work.

Their situation is practically the definition of a loophole. Public interest lawyers, OTOH, really are often in truly low-paying careers, rather than creating an artificial and temporary illusion of low income (and an illusion of nonprofit despite the nonprofit being a company that makes and pays gobs of money). But people still haven't really come to the understanding that most lawyers no longer belong in the same earnings category as docs so they get lumped together. Were there ever to be a cap on PSLF forgiveness, it would probably single out those whose loans were incurred for law or medical school, but I hope and bet it would operate prospectively and existing borrowers would get grandfathered.

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6figuremistake (Apr 10, 2017 - 1:23 pm)

Yeah, I'm not surprised the media is distorting the ramifications of the present controversy. Nonetheless, when I quickly looked into PSLF years ago, it seemed like forgiveness would be broader than government employees and 501c3 org staff. One detail I remember is that you could get forgiveness for working for a religious organization as long you weren't directly involved in the ministry aspect of it.

Anyway, it makes sense to tighten the program up - it is pretty susceptible to abuse, but I do feel bad for anyone who relied on an explicit verification of his/her status. If a person just assumed forgiveness would be forthcoming, that's one thing, but what more can you do than ask for verification from your lender?

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onehell (Apr 10, 2017 - 2:06 pm)

It is broader than just c3/gov't, but if it is not a c3 or gov't agency, they are supposed to inquire substantively into what the organization actually does and whether it fits into one of the listed categories. The servicer's error was that they were apparently saying yes to all 501c organizations, not just c3, but when it is not a c3 there's supposed to be a more subjective test that they apparently weren't applying.

The ABA, for example, tried to say it was "education," but the DOE ultimately said "education means education in a school or school-like setting," which seems pretty common-sensical.

Point is, if it's not c3/gov't, you could still qualify but you're outside the safe harbor. And it would be pretty rare that something outside the safe harbor would actually qualify, because most nonprofits that actually provide direct service would have no reason not to be c3.

The people that received the erroneous letters can challenge, and in the case of the ABA, they are. But it doesn't change the fact that they really never should have been approved in the first place, meaning their claim now sounds in reliance or something of that nature. And if DOE corrects it's servicers process going forward, future applicants in similar circumstances won't (and shouldn't) qualify unless the non-c3 nonprofit can convince DOE that it meets the more subjective test.

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fettywap (Apr 10, 2017 - 1:33 pm)

Why can't people sue for detrimental reliance if they were told their employer qualified?

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onehell (Apr 10, 2017 - 2:07 pm)

They can, and the ABA filed a lawsuit on behalf of their employees which essentially argues that point, though of course they do also argue that they should qualify on the merits as well, on the theory that they provide educational services despite not being a c3.

As an aside, the reason ABA is pursuing this is because it wants to be able to advertise PSLF in its recruiting, and may have misled its own employees. So depending on how this case goes they may have a conflict of interest with their employees. They knew they weren't a c3 and they were a lawyers' organization perfectly capable of reading and understanding the rules. Frankly, they should have known better.

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jeffm (Apr 10, 2017 - 6:24 pm)

"Frankly, they should have known better."

... because they are sophisticated.

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onehell (Apr 10, 2017 - 7:42 pm)

Not the borrowers, the ABA which marketed PSLF to its employees despite not being a c3 and despite not providing any kind of direct service to a charitable class.

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jeffm (Apr 10, 2017 - 7:46 pm)

I know. I was adding emphasis to OP's point. If anyone ought to know, you'd think the ABA would.

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defensivelawyer (Apr 10, 2017 - 11:42 pm)

a truly sophisticated borrower would have his lawyer negotiate the terms of the loan.

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