A new report from the Consumer Financial Protection Bureau (CFPB) found that student loan servicers systematically misused a key student loan forgiveness program, often providing misinformation or distorting borrowers’ rights and options.
The CFPB, now under new leadership following a shift in key Trump-era officials, is re-emerging as a key investigator and executor of consumer protection issues, including sloppy student loan servicing. New oversight report released today, highlights some of the significant, widely documented problems with the Public Service Loan Forgiveness (PSLF) program.
Government Loan Forgiveness is a popular program that allows some federal student loan borrowers to obtain forgiveness of their student loans after having worked in government and nonprofit positions for 10 years or more. While the PSLF program may seem fairly straightforward, its requirements are complex and the program has suffered from problems for many years. Although the program is often referred to as a 10-year program, PSLF technically requires 120 “qualifying payments” to meet several eligibility criteria:
- Payments must be made to Direct Federal Student Loan… Not all federal student loans are issued through the direct loan program. In particular, Federal Family Education Loan (FFEL) loans do not meet PSLF requirements. FFEL loans may qualify if they are combined into a federal direct loan, although in some cases direct consolidation of a loan can have significant implications.
- Payments must be made in accordance with income-driven repayment plan such as IBR, PAYE, or PAY OUT… Payments made under the 10-year standard plan are also eligible, although the underlying federal loan will be fully repaid within 10 years. Other repayment plans, such as advanced plans and milestones, are ineligible.
- The borrower must make timely payments while working full time with a government agency or legal entity or non-profit 501 (c) (3). Other non-profit organizations that do not have 501 (c) (3) status may be eligible under certain limited circumstances, although the Department of Education makes individual decisions.
The CFPB report found numerous problems with the administration of the PSLF program, and the agency blamed service providers for many of these problems. The agency “discovered several ways in which employees serving student loans misinformed borrowers, leading to errors that could cost consumers thousands of dollars,” the CFPB said in a statement summarizing the results. “For example, experts have found that service organizations mislead consumers into believing that they cannot access PSLF if they had old loans under the Federal Family Education Loan Program (FFELP), even if they could access the PSLF. PSLF by consolidating FFELP loans into direct loans ”. The report also highlighted frequent problems with borrowers trying to confirm that their work complies with PSLF requirements. The CFPB also found that service companies misaligned monthly payments and miscalculated their monthly payments. The CFPB concluded that many of these practices “caused or could cause significant harm” to student loan borrowers.
Borrower advocates criticized student loan officers and the US Department of Education following the publication of the CFPB report. “CFPB findings confirm that the student loan industry has been involved in a widespread illegal scheme to solicit government officials to forgive loans earned through their service to our country and our communities.” said Seth Frothman, Executive Director of the Student Borrower Advocacy Center and former Student Loan Ombudsman at CFPB. “The department has allowed a generation of dedicated teachers, nurses and other government officials to be ripped off by student loan companies.”
The government service loan forgiveness program has long suffered from problematic approval. When, at the end of 2017, student loan borrowers were first eligible to apply for forgiveness under the program, PSLF had terrible initial approval rate only 1%. IN latest statistics indicate that PSLF has improved only marginally since then, with an approval rate of just 2%. The Department of Education is also grappling with continuing backlog of tens of thousands of PSLF applications, forcing some borrowers wait six months or longer for definitions.
Earlier this year, over 100 organizations submitted letter Minister of Education Miguel Cardone, urging him to use the emergency response to the pandemic to conduct a full 90-day audit of the “broken” public service loan forgiveness program and cancellation of student loan debt of all student loan borrowers who have completed ten or more years of public service, whether or not they meet the complex PSLF eligibility criteria. Advocacy groups and Democrats in Congress also called on the Biden administration to extend the current pause on most federal student loan payments that will expire on September 30 until programs such as the PSLF are corrected.
So far, the Department of Education has not functioned. The Biden administration recently announced the start of a lengthy rule-making negotiation process to review and possibly overhaul major federal student loan programs, including government service loan forgiveness. But any meaningful change can take years.
Meanwhile, supporters of student loan borrowers are losing patience. “Secretary Cardona must use his authority to correct this terrible mistake and save these borrowers,” Frotman said.