Thousands of student loan approval letters from FedLoan Servicing are not binding and can be rescinded at any time.

Student Loan DebtAccording to a New York Times article “more than 550,000 people have signed up for a federal program that promises to repay their remaining student loans after they work 10 years in a public service job,” but now those letters may not be binding.

Four borrowers and the American Bar Association have filed a suit in United States District Court in Washington against the department alleging that the Education Department acted “arbitrarily and capriciously” in making its decisions about which employers qualified.

The plaintiffs held jobs that they initially were told qualified them for debt forgiveness, only to later have that decision reversed. The borrowers are suing to have their eligibility for the forgiveness program restored.

What is the forgiveness program?  This program was approved by the federal government in 2007.  People with federal student loans are offered incentives of having their student loans reduced or eliminated at the end of a period (normally 10 years) if they work for a public service company.  That means these borrowers give up the opportunity to work in the private sector where presumably they would be paid more.

On its website, the Education Department directs borrowers who believe their employer qualifies to submit a certification form to FedLoan. If the form is approved, the Education Department transfers the borrower’s loans to FedLoan, which collects payments and tracks the borrower’s progress toward the 120 qualifying monthly payments they must make before the remaining balances will be forgiven.

Education Department’s response: the “FedLoan’s responses to borrowers’ certification forms cannot be trusted.”

A FedLoan approval letter “does not reflect a final agency action on the borrower’s qualifications” for the forgiveness program, the department wrote.

ABA said the Department’s response “illogical, untenable and bewildering”

Linda Klein, president of the American Bar Association, called the department’s response “illogical, untenable and bewildering.” An unreliable certification system “exposes those undertaking public service work — exactly what Congress intended them to do — to crippling financial risk,” she said.