Fedloan canceling student loans could hurt borrowers even more

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Christie Cruz may pay the final installment of her college loan in February, when the 49-year-old public interest lawyer becomes eligible for a federal program that will forgive her the remaining $ 43,000 law school debt. Cruise’s journey to freedom from college debt took over a decade.

But will it be ripped off at the last minute?

FedLoan – which operates as a subsidiary of the Pennsylvania Higher Education Promotion Agency (PHEAA) – has waived bomb earlier this month, informing the Federal Department of Education that he I will not look for an extension 12-year government contract to collect payments for millions of borrowers on a portfolio of federal education loans.

FedLoan, one of several government-approved contractors serving 44 million student loan borrowers, has been the subject of lawsuits and customer service audits. So his decision could be a relief for reform advocates and borrowers.

But his actions provoked the opposite reaction from some: fears about what will happen this fall, when the huge federal loan servicing apparatus starts collecting loan payments again.

Borrowers did not have to pay federal education loans during the pandemic and are expected to resume so september 30

At the same time, the Department of Education will develop plans to transfer PHEAA’s $ 390 billion loan portfolio to new support staff.

Some of these FedLoan borrowers, such as Cruz, are participating in the loan forgiveness program for government agencies, law enforcement officials and non-profit organizations. This attempt met with criticism from many applicants, who were refused after the application was submitted. The millions of new borrowers served by FedLoan are simply paying off their student loans.

Persis Yu, director of the National Consumer Advocacy Center for Student Borrowers, said the move to FedLoan would be “a huge shift in a short time for many people. We have no precedents for translations of this size. “

Borrowers should expect some records to be lost in the transition. “If I were a FedLoan borrower, I would try very hard to get these records, but I don’t know if they can do it before the transition,” Yu said. Most people “do not keep their own records,” she said. It’s the turn of the people to try to solve the FedLoan problem. ”

Even Yu, who defends the interests of borrowers, “it takes a long time to get the paperwork,” she said.

Seattle-based Cruz says she has complied with the government’s loan forgiveness program for over a decade, regularly certifying her income and submitting monthly loan payments.

But mistakes were made. She had to correct mistakes and write letters of appeal. “For weeks or months it seems like extra work to convince FedLoan to fix the situation,” Cruise said, although over time she and FedLoan have come to a “good spot”.

“We are on the same wave”.

Now this. She could deal with the new service staff until she was forgiven. Will she have to prove herself again? “This is a terrible time for me,” Cruz said. “I’m so close and now they’re going to drag it away. I don’t understand how it will get better with these or those services ”.

PHEAA spokesman Keith New said last week that the agency will not seek an extension of its federal contract, which expires on December 14, “beyond what is necessary to ensure a smooth transition to new service personnel.” Nevertheless, according to him, the transition may last until 2022.

The PHEAA decision was critical for the federal education loan service sector.

Since taking office as President Joe Biden in January, the White House has appointed new high-ranking officials in the Department of Education who are seen as sympathetic to borrowers and less friendly to federal lending services such as FedLoan and the publicly traded Navient, based in Wilmington. …

Critics say service companies mismanaged the business, and some of their decisions resulted in higher fees and costs for borrowers, which benefited the companies. They deny it.

In February, PHEAA settled a lawsuit filed by Massachusetts Attorney General Maura Healy over loan servicing error claims. About 200,000 Massachusetts borrowers whose federal loans are serviced by PHEAA can apply for a detailed account analysis. PHEAA has neither admitted nor denied wrongdoing.

Then in April, James Steely, chief executive officer of PHEAA and one of Pennsylvania’s highest-paid civil servants with $ 334,950 in compensation, faced criticism from U.S. Senator Elizabeth Warren of the District of Columbia, Massachusetts during a hearing before the Economic Policy Subcommittee. for servicing federal loans.

Warren, chairman of the subcommittee, said the lawsuits and investigations show that PHEAA “systematically underestimates” payments to borrowers, leading to rejection of those trying to qualify for the public service loan forgiveness program. According to Warren, of the 225,000 borrowers who applied for forgiveness of loans, only 2% received them.

“PHEAA does not underestimate payments,” Styles told Warren. The high bounce rate is due to people not making enough payments to qualify for forgiveness. “We strive day in and day out to do our best for the people of Pennsylvania, for the customers we serve,” he told Warren. “On their behalf, we advocate program improvements to increase the level of forgiveness.”

Following the hearing, Warren and US Senator John F. Kennedy (R., Louisiana) sent Styles a letter “regarding what appears to be false and misleading testimony.”

The letter said Styles showed that PHEAA was not penalized for running a public service loan forgiveness program. But nine program reviews from 2016 show “four corrective action plans and two fines, each worth more than $ 100,000,” the letter said. Warren and Kennedy asked Styles to explain their comments by July 7th. PHEAA did not respond to questions about Style’s readings.

On July 8, the Pennsylvania agency made a surprise announcement that it would not seek an extension of the federal loan service contract, calling it a business decision. Styles said in the past that the federal contract was not as lucrative as it was in its early years. “Millions of loan borrowers can breathe a sigh of relief knowing that PHEAA will no longer manage their loans,” Warren said in response to the PHEAA statement.

People wonder what will happen next. Some have called on the government to extend the federal loan moratorium beyond September 30.

Some believe that the Missouri Graduate Loan Authority, known to borrowers as MOHELA, may have had internal paths to replace FedLoan as a federal servitor. The federal government could also select other caregivers.

New, a PHEAA spokesman, said that while the agency will assist in the transition to the new company, “it is exclusively [Education] Decision of the department “to select a service technician.

The big question is what will happen to the 2,500 telephone customer representatives and other PHEAA staff, mostly based in Harrisburg. The agency will continue to serve loans to other groups and students at Pennsylvania colleges. But the federal contract brought in significant profits.

“Some downsizing may be inevitable,” New said. PHEAA expects some employees to leave on normal turnover, New said, but it is too early to estimate job cuts.



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