Massachusetts’ Attorney General Maura Healey has filed an enforcement action against FedLoan Servicing, alleging that the company has mismanaged the Public Service Loan Forgiveness (PSLF) program. The failure by both FedLoan Servicing and the Pennsylvania Higher Education Assistance Agency (PHEAA), FedLoan Servicing’s parent company, is yet another example of loan servicers harming a program that is otherwise operating without issue.
Public Service Loan Forgiveness was signed into law by President George W. Bush in 2007, and allows borrowers who work in qualifying employment and make 120 on-time monthly payments to earn student loan forgiveness after ten years of public service. More information about student loans and PSLF can be found here.
FedLoan Servicing was selected by the Department of Education as the sole handler of the Public Service Loan Forgiveness program in 2012. As a result, whenever a borrower fills out a voluntary PSLF employment certification form, their loans are transferred to FedLoan Servicing. Unfortunately, FedLoan does not have an excellent track record with borrowers.
After the Consumer Financial Protection Bureau (CFPB) released a report on loan servicers and complaints about the mishandling of PSLF, the Massachusetts Attorney General filed its enforcement action. According to the Attorney General, FedLoan has been overcharging students, resulting in payments that carry over into the next billing period and result in fewer qualifying payments. These overcharges were brought up to FedLoan, but the company refused to fix these issues. Healey also alleges that FedLoan did not process borrowers’ applications effectively, which caused borrowers to miss deadlines for payment. When borrowers had delays in payments, FedLoan put borrowers’ accounts into forbearance, a non-qualifying repayment plan, leaving borrowers on the hook to make more payments to earn PSLF. On top of that, FedLoan overcharged borrowers, resulting in tens of thousands of dollars of additional payments.
The Attorney General is seeking restitution, injunctive relief, civil penalties, and reimbursement of the costs and expenses for FedLoan’s “unfair and deceptive student loan servicing practices.” Since FedLoan handles $303 billion in student loans across the country, about one-third of all federal student debt, this case will be important for many borrowers to follow.
If you or anyone you know has faced issues with FedLoan or other loan servicers, there are resources that can help. The CFPB takes complaints, forwards them to the loan company, and works with them to get you a response. Additionally, there is a step-by-step guide from the Department of Education that may help resolves issues with your loans or loan servicer. Finally, if your complaint has not been resolved by your loan servicer, you may contact the Department of Education’s Federal Student Aid Ombudsman group, a neutral, informal, and confidential resource that can help resolve your loan issues.
If you are interested in ensuring that the White House and Congress don’t eliminate Public Service Loan Forgiveness, take action here.
Equal Justice Works provides free support to borrowers to help get their qualifying payments on track, and helps law students learn more about all aspects of managing their student debt. We have a debt relief newsletter, free student debt webinars, an informative website, and a free student debt e-book, Take Control of Your Future.
Brandon Hanson is the Student Debt Specialist at Equal Justice Works. At Equal Justice Works, he helps students, lawyers, and law school professionals manage their student debt through education, outreach, and policy analysis. Brandon is a graduate of the University of St. Thomas School of Law in Minneapolis and the University of Iowa, and has worked with political campaigns, non-profit organizations, and state government.