The Legal Beat
More Lawyers Working In Public Service Are Starting To See Their Student Loans Vanish Thanks To The Public Service Loan Forgiveness Program
Posted on Wednesday February 21, 2024
Earlier this month, the ABA Journal profiled four lawyers whose student loans were forgiven through the Public Service Loan Forgiveness (PSLF) program. Their debt balances ranged from $60,000 to $322,000.
To qualify for loan forgiveness through PSLF, the borrower must work for a nonprofit organization or the government for 10 years while paying a portion of their income toward their loans.
Prospects for loan forgiveness have been improving. According to the most recent Department of Education announcement, 793,400 borrowers had their loans forgiven through PSLF. This was due to easing of PSLF qualification rules in the past few years. Also, the COVID-19 loan forbearance which lasted for two years also counted toward the 10-year requirement.
This is a far cry from 2018 where a Department of Education report showed that of the 29,000 people who applied for loan forgiveness, only 96 were granted forgiveness. But that was when the department was run by Secretary Betsy DeVos, who probably believed that borrowers can pay off their loans by taking a side hustle as an Amway distributor.
As time passes, more people will receive PSLF forgiveness under the current regulations and the forgiven amounts are likely to be higher. Also, in a few years, the first wave of applicants whose loans are under the other income-based repayment payments such as Pay As You Earn will be eligible for forgiveness once they have met the 20- or 25-year payment requirement.
But a newly appointed secretary can either maintain the status quo or issue new rules and regulations that will make it harder or easier to obtain loan forgiveness.
As loan forgiveness becomes more prevalent, some people will question its fairness, particularly those who sacrificed to pay off their loans in full. And public sentiment — which includes the silent majority — will dictate future efforts on student loan forgiveness. This may explain why Congress and the president did not pass student loan forgiveness legislation in 2021 when Democrats were in control.
PSLF has encouraged more lawyers to pursue public service work. But that also made public service jobs much more competitive.
PSLF can also promote labor inefficiency. Some will leave public service once their loan balances are forgiven if the option is available to them. For example, the attorney profiled with the highest forgiven loan balance of $322,000 left public service and is now working at a midsize law firm.
Lawyers seeking to practice in underserved rural areas known as “legal deserts” could take advantage of PSLF by setting up their law firm as a 501(c)(3) nonprofit organization similar to legal aid clinics. The IRS may grant the request since it serves charitable purposes such as lessening the burdens of government, eliminating prejudice and discrimination and defending human and civil rights secured by law.
This does not necessarily mean working for free or for low pay. The IRS does not allow people to use a tax-exempt organization to benefit private individuals. However, it does allow an employee to receive reasonable compensation. While the definition of reasonable compensation is not clearly defined, an argument can be made that finding attorneys willing to work in rural areas is difficult and that higher compensation is justified to attract talent.
Now, there is proof that lawyers working in public service are getting their loans forgiven through PSLF. For those who are on PSLF, take advantage of the more forgiving rules, and stay on top of the employment requirements in order to maintain certification. Those who want to help people in underserved areas can probably qualify for PSLF by setting up a legal clinic in the area.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at [email protected]. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.