Suit Against FedLoan Servicing Alleges They Screwed Over Public Service Loan Forgiveness and TEACH Grant Debtors

The Attorney General of Massachusetts has had enough of the complaints of incompetence about FedLoan Servicing (AKA Pennsylvania Higher Education Assistance Agency, PHEAA). In this unrelated case the U.S. Department of Education has been arguing that although their company assigned to manage the Public Service Loan Forgiveness (PSLF) program is making mistakes by saying people are qualified for forgiveness. The Government goes on to assert even if FedLoan Servicing gives credit towards forgiveness it doesn’t matter as only the Department of Education can make that determination.

Now the Massachusetts Attorney General is saying the FedLoan Servicing mess is even larger. Attorney General Maura Healey says, “This company’s actions have jeopardized the financial futures of teachers and public servants across the country,” said AG Healey. “These federal programs allow Americans from all backgrounds to dedicate their careers to serving others. My office will protect PSLF and hold PHEAA accountable for forcing these students further into debt.”

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Rather than fulfill its responsibilities to these borrowers, FedLoan Servicing has instead prevented student borrowers from making qualifying monthly payments that count towards loan forgiveness, shifting the consequences of its loan servicing failures onto the student borrowers themselves.

And guess who is left holding the bag here, the individual consumer since the Department of Education says FedLoan Servicing is making mistakes they don’t have to stand behind. The lawsuit filed says, “When PHEAA causes borrowers to lose the opportunity to make qualifying payments towards loan forgiveness due to its own servicing failures, PHEAA does not remediate borrowers accounts to account for the lost months. Borrowers therefore bear the brunt of PHEAA’s servicing failures.”

It appears clear FedLoan Servicing is making errors impacting student loan debtors and they are not fixing the errors. The Department of Education is pointing the finger back at FedLoan Servicing and saying the Government isn’t responsible either.

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But the PSLF and TEACH Grant program (Under the TEACH Grant program, students receive up to $4,000 per year to help pay for the education required to pursue a teaching career) are not the only allegations of poor performance. The complaint filed by the Attorney General alleges FedLoan Servicing can’t get the Income Driven Repayment (IDR) programs straight either. According to the complaint, “PHEAA has failed to process borrowers’ IDR applications timely and properly, thereby depriving borrowers of the opportunity to make qualifying monthly payments that count towards loan forgiveness. To accommodate its processing delays, PHEAA has put borrowers’ accounts into forbearance status, which is not a qualifying repayment plan for loan forgiveness under PSLF or IDR plans.” – Source

FedLoan Servicing manages “more than a quarter of the nation’s $1.4 trillion student loan debt on behalf of various lenders for millions of borrowers across the United States.”

It’s nice to see someone trying to clean up this mess but as of now only residents of Massachusetts may benefit from the suit. This is the type of case the Consumer Financial Protection Bureau (CFPB) is perfect for but right now conservative voices are shouting for the CFPB to be shuttered. If the CFPB took on a case like this, student loan debtors across America would benefit.

I sure hate to be cynical but it always seems like the individual is the least powerful and most taken advantage of by government and private creditors alike.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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