The Contract State, Program Failure, and Congressional Intent: The Case of the Public Service Loan Forgiveness Program

If a future administration were to adopt sweeping student loan forgiveness, the contract state may stand in the way of actual debt cancellation. In the likely event that Congress were to adopt something short of universal and immediate student loan forgiveness, the Public Service Loan Forgiveness (PSLF) experience teaches us that the federal bureaucracy is unlikely to deliver fully on the legislative promise. In the first two years of the PSLF program, nearly 100,000 student loan borrowers have applied, and the Department of Education’s contractor has denied roughly 99,000 of those applications. The Department blames Congress for an unduly complex program design and borrowers for applying without understanding the eligibility rules. Given that PSLF has only four basic eligibility tests and that applicants are college graduates who can presumably read and count, this narrative seems implausible to explain a ninety-nine percent denial rate. Evidence from oversight agency reports, state attorney general and class action lawsuits, and thousands of borrower complaints logged by the Consumer Financial Protection Bureau tell a different story—a story of agency failure to implement and oversee the program, and of widespread contractor errors and misrepresentations. This Article explores the PSLF failure in detail, as an exemplar of the dysfunction of the contract state. I describe the legislative goals motivating student loan forgiveness and the contract architecture of the state-servicer relationship that administers a multibillion-dollar government loan repayment and cancellation program. I then evaluate the political and legal accountability for failure, and the promise and perils of the contract state