Senator Elizabeth Warren (D., Massachusetts) targets a key Pennsylvania student debt agency, saying its chief lied to the committee and that other firms could better serve federal student loans.
“We’re dealing right now with… a CEO who appeared before a subcommittee and lied,” Warren said in a recent interview about James H. Styles, who runs the Pennsylvania Higher Education Support Agency (PHEAA). Known nationally as FedLoan, the agency serves approximately 8 million federal student borrowers.
It refers to Styles’ comments before the subcommittee in which he said PHEAA was not “punished” for failing to service loans, although the agency was fined twice in 2020 for a total of $ 244,000. Styles denied that Warren was misleading, but added that “in hindsight, I see that some of my answers were not as clear as they could have been.”
Hundreds of lost jobs also come to PHEAA due to its decision to stop FedLoan from serving a contract this fall, which includes a government service loan forgiveness program. Politicians, union leaders and borrowers called the program a failure, and two state attorneys general are suing FedLoan over federal loans.
PHEAA’s loss of a contract with the Ministry of Education will cause the once nationally known venture to lose about 70% of the student loans it serves.
“Some downsizing will be inevitable,” said PHEAA spokesman Keith New. But he added that “we do not expect immediate cuts. We also expect that the usual layoffs of employees, especially in our call centers, will mitigate any consequences over time. ”
PHEAA has laid off about a third of its employees in the past five years – even as the Education Department’s federal fees have risen. Its headcount has been reported to have dropped from 3,600 in 2016 to 2,300 currently in call centers and administrative offices, mostly in Harrisburg.
Local union AFSCME, representing PHEAA staff, did not respond to comments. A Glassdoor employee wrote this month that PHEAA is “not a bad place, but currently a sinking ship.” The staff member added that since the agency “lost [its] a well-fed contract, seniority is very important. “
In its decision, PHEAA cited lower profitability and will focus on other areas of the business, including licensing its software and servicing loans to other clients.
Senator Art Haywood, Montgomery / Philadelphia County, said it was time for the state agency to drop the federal contract as it became a problem.
“For a long time, PHEAA has been accused of implementing program rules adopted by Congress,” said Haywood, a PHEAA board member since 2018. Warren’s accusation “was not the straw that broke the camel’s back. I would say that this is another example of how difficult it is to work with the federal government on this contract. It was a shame how he [Steeley] was treated ”in the testimony.
Haywood said the business opportunity to apply for the contract “was much worse than ending the relationship.”
Even before the showdown at Warren’s April hearing, PHEAA faced growing legal and political pressure. A lengthy lawsuit by a federal whistleblower stripped PHEAA of its legal immunity as a government agency, opening the door to legal action.
In 2017, Massachusetts Attorney General Maura Healy sued PHEAA on behalf of borrowers in her state, alleging that PHEAA made mistakes. PHEAA settled the case in early 2021 without admitting wrongdoing, but agreed to audit the accounts of Massachusetts borrowers.
New York Attorney General Laetitia James is also suing the Pennsylvania agency.
Former Secretary of Education Betsy DeVos, who was appointed by Trump, was considered friendly towards those serving student loans. But with the arrival of the Biden administration, new people with different views took over leadership positions in the Ministry of Education.
Richard Cordray, the first director of the Bureau of Consumer Financial Protection, an agency created in the aftermath of the subprime mortgage crisis, was named chief operating officer of the Federal Student Service in the Department of Education.
PHEAA is responsible for exclusive loan servicing under the Public Service Loan Forgiveness program, which eliminates student debt of college graduates working in low-paying public service positions if they meet certain criteria.
Trade unions, teachers, political leaders and reformers say the forgiveness program has failed many of those it promised to help.
From November 9 to April 30, student loan borrowers submitted 391,333 applications to participate in the program. But federal data show that PHEAA only accepted 3,458 people to write off student debt.
PHEAA officials blame the mistakes of other lending institutions, bureaucratic federal regulations and the borrowers themselves for not being able to make the required payments within 10 years.
Styles responded to a question during an April 13 Economic Policy Subcommittee hearing, chaired by Warren, when he said PHEAA was not punished for running a forgiveness program.
A month later, Cordray informed Warren of numerous reviews of the PHEAA’s work. …
The department took four corrective actions to correct the problems and fined PHEAA twice: one for $ 108,000 and one for $ 136,000 in June and October 2020.
In addition, Cordray noted that Ministry of Education officials found FedLoan had 20% errors in military forgiveness statements.
Warren and a senior Republican on the subcommittee, US Senator John F. Kennedy, Georgia, wrote to Styles that “it is unclear that you have been criminally punishing yourself by” knowingly and deliberately “providing false information to Congress.”
On July 2, Steely responded that he did not “willfully falsely testify” and that he was nervous because he had not previously testified before Congress.
“I’ve done my best to accurately answer your questions in real time,” said Styles, who makes $ 334,950 a year.
About a week later, PHEAA announced that it would not seek a contract extension with the education department to service student loans. The agency had a ten-year contract. Styles declined to be interviewed for this article.
Warren said the Department of Education “stepped up and announced that the old days, when those servicing student loans could do whatever they wanted and make a profit, are gone. PHEAA has decided that they will leave the field. “
Regarding PHEAA’s claim that servicing student loans has become less profitable, Warren said other companies may be bidding on the contract. “This is how markets work. This is a big profit. “