Borrower Defense to Repayment Public Service Loan Forgiveness

Nearly All Department of Education Loan Programs Seemingly Broken Under DeVos

The Department of Education under Betsy DeVos seems to be broken when it comes to overseeing student loan programs. Deep issues are preventing debtors from getting access to programs and forgiveness under the law. The biggest broken programs are Public Service Loan Forgiveness, Borrower Defense to Repayment, Closed School Discharges, and now a new class-action suit raises more alarming concerns.

The 231-page consolidated amended class action complaint against FedLoan Servicing is a collection of horror stories. FedLoan Servicing is the name for the Pennsylvania Higher Education Assistance Agency (PHEAA).

Granted, the problems with some of these programs began before DeVos stepped in but the Department of Education under her leadership has appeared to make these problems worse, not better.

According to the complaint, PHEAA has been the exclusive loan servicer of the TEACH Grant Program since 2013 and the PSLF Program since 2012.

And that TEACH Grant program is an alleged mess.

“The TEACH Grant Program provides grants up to $4,000 each year for students who teach in a high-need subject area, such as special education, mathematics, and science, in a school that serves low-income families for at least four years within eight-years of graduation. Grant recipients must execute an “Agreement to Serve” in exchange for the Grant and agree to submit (i) certification upon completion of each year of qualified teaching, and/or (ii) annual certification that he or she “intends to satisfy the service obligation.” If recipients do not submit these certifications, their TEACH Grant will be converted into an interest-bearing federal loan.”

The complaint gives specific examples of people who had their TEACH Grants converted to interest-bearing loans when they should not have been.

PHEAA is blamed for failing to properly administer the program and is said to have:

  • Routinely converting recipients’ TEACH Grants into interest-bearing loans (“TEACH Loans”) after recipients actively confirmed their intention to satisfy the service obligation, because of hyper-technical mistakes on the certification form;
  • Routinely converting recipients’ TEACH Grants to interest-bearing TEACH Loans after failing to provide proper notice to recipients of their annual certification due date; and
  • Routinely converting recipients’ TEACH Grants to interest-bearing TEACH Loans without providing the required amount of time after notice of the annual certification deadline to submit their annual certification form.

And even if PHEAA had administered the programs without failure, in the PSLF mess the Department of Education said that the actions and words of PHEAA could not be relied on when it came to certification of employment forms completed by PHEAA.

Even when the Department of Education tried to fix past errors it appears the solution came up short.

“Although the Department announced a TEACH Grant Reconsideration Process earlier this year, in which recipients may apply to have their loans reconverted into TEACH Grants, Defendants’ administration of that program has come up short too. Defendants have denied reconsideration to many eligible recipients and, for those lucky enough to have their TEACH Grants reinstated, Defendants failed to refund and/or credit recipients for the amounts paid towards their improperly instituted TEACH Loan(s). Plaintiffs Stevens and Musser both applied for reconsideration. Defendants reinstated only one of Stevens’ four TEACH Grants and refunded Musser only $1,676.50 of the $7,325.25 in payments she made towards her improper TEACH Loans.”

And while it is not new news, PHEAA and other servicers’, have allegedly missed the mark when providing advice on Income-Driven Repayment programs.

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The complaint says these failures include:

  • Failing to assist and inform financially distressed borrowers about the availability of more affordable monthly payments under the IDR Plans and steering them instead into a general forbearance based on economic hardship and capitalizing accrued interest;
  • Improperly capitalizing interest during periods of “B-9 administrative forbearance,” in violation of 34 C.F.R. § 685.205(b)(9), when additional time is necessary to process a borrower’s request to change repayment plans;
  • Placing borrowers’ loans into general forbearance and capitalizing accrued interest when additional time is necessary to process a borrower’s request to change repayment plans, contrary to the requirements of 34 C.F.R. § 685.205(b)(9);
  • Denying a borrower’s annual recertification request because of deficiencies in the completed IDR Plan Request form, which causes accrued interest to capitalize and a borrower’s IDR monthly payment to increase to an unaffordable amount;
  • Failing to apply the regulatory exception to certain borrowers who submit their annual recertification paperwork after the deadline;
  • Failing to effect proper notice of mandated disclosures, including the deadline for submitting the annual IDR Plan recertification paperwork; and
  • Failing to sufficiently notify borrowers who request a change from an IDR Plan to another repayment plan that accrued interest will capitalize upon changing plans.

The class-action complaint is replete with examples of failing debtors.

“In 2016, Plaintiff Arianne Gallagher (“Gallagher”), a Director-Program Manager in the Office of Presidential Fellowship, submitted her annual paperwork for the recalculation of her IDR Plan monthly payment. Instead of promptly recalculating her new payment, as required by applicable regulation, Defendants took more than three months to process her request. To accommodate their delay, Defendants improperly placed her loans into a general forbearance for nearly two months and capitalized more than $13,000 in interest.

The next year, Gallagher contacted PHEAA to discuss other repayment options. Rather than review her options and help her choose the one that best suits her needs, PHEAA required her to change plans to compare the differences for herself. In addition to completely failing to assist and advise Gallagher of her repayment options, Defendants failed to disclose that changing from her current IDR Plan to another plan would cause interest to capitalize and that changing back to her original plan if the new plan did not suit her needs, would cause any further accrued interest to capitalize. Consequently, more than $2,200 in interest capitalized as a result of switching plans to explore her repayment options.”

“Plaintiff Yannet Lathrop (“Lathrop”), a Research and Policy Analyst at the National Employment Law Project (“NELP”), timely submitted her IDR Plan recertification paperwork in January 2016 and requested to switch to a different IDR Plan. It took Defendants nearly five months to process her request. To accommodate their delay, Defendants improperly placed her loans into general forbearance for four months which caused interest to capitalize. Defendants further failed to advise Lathrop that changing from one IDR Plan to another would cause accrued interest to capitalize.”

“Plaintiff Arielle M. Anderson (“Anderson”) is a resident of Spokane, Washington. Anderson received various federal student loans to help pay the costs of her post-graduate school education. To help manage her repayment obligations, Anderson enrolled in the IBR Plan and is pursuing loan forgiveness under the PSLF program. PHEAA services Anderson’s federal student loans.

In December 2017, Anderson timely submitted her annual income documentation to PHEAA. Although she did not submit the IDR Plan Request Form at that time, PHEAA acknowledged receipt of Anderson’s income documentation and advised that it will “process [her] recertification request once the final bill of your current schedule is generated.” At no time did it advise her that her application was deficient because she failed to submit the Request Form itself.

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Instead, PHEAA placed Anderson on the Standard Repayment Plan and capitalized approximately $15,000 in accrued interest for purportedly failing to timely recertify her IDR Plan. When Anderson contacted PHEAA about her inability to pay the Standard Repayment Plan amount, PHEAA steered her into general forbearance and advised her to reapply for IDR.

On February 9, 2018, Anderson submitted her income documentation again along with the IDR Plan Request Form, shortly after which PHEAA determined her new IBR payment to be $0.”

“Plaintiff Michael Asby (“Asby”) is a resident of Daytona Beach, Florida. Asby received a TEACH Grant in 2009 to help pay the costs of pursuing his Bachelor of Applied Science in Special Education and Teaching degree from the University of Central Florida and executed the required Agreement to Serve. Asby has taught full-time as a highly qualified teacher in a high-need field at a school serving low-income students since 2011. PHEAA serviced Asby’s converted TEACH Loan.

Asby submitted the initial 120-day certification upon completing his TEACH eligible program of study to confirm that he was employed full-time in a qualifying teaching position or intended to meet the terms and conditions of the Agreement to Serve.

Asby thereafter submitted the annual certification in 2013, 2014, and 2015 to certify that he had taught for one complete academic year or was currently teaching full-time in a qualifying teaching position.

In 2016, PHEAA posted notice of the annual certification obligation only to Asby’s paperless inbox at www.myfedloan.com, which Asby was not aware and did not receive. Before 2016, Asby had always received notice of the annual certification deadline via regular mail. As a result, he missed his certification deadline.

In November 2016, Asby received notice that his TEACH Grant had been converted to an interest-bearing loan. Asby has since paid off his TEACH Loan.

In 2019, Asby requested reconsideration of his TEACH Grant conversion. Defendants denied his request.”

“Plaintiff Katie Bonham (“Bonham”) is a resident of Chelsea, Alabama. Bonham graduated from Faulkner University with degrees in criminology and psychology. For the last ten years, Bonham has served as a law enforcement officer.

Bonham received federal student loans to help pay the costs of her education. Today, Bonham still owes approximately $23,000 in federal student loans. To help manage her repayment obligations, Bonham began pursuing loan forgiveness under the PSLF program. She has worked for PSLF qualifying employers since January 2009. PHEAA services Bonham’s federal student loans.

Bonham has made consistent, on-time, monthly payments as required by the PSLF program for more than ten years while working for a PSLF qualified employer. However, PHEAA has credited her for less than 60 payments.

Bonham has suffered various injuries as a result of Defendants’ misconduct, including: (a) denial of the benefits of IDR Plans, and (b) denial of the opportunity to make qualifying payments, which delays loan forgiveness under the PSLF Program and her IDR Plan.”

There are many more examples in this complaint which you can read below.

And here is yet another recent case with some similar complaints.




About the author

Steve Rhode

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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