Student Loans: 9 million borrowers get new support staff. That’s why

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The Pennsylvania Higher Education Support Agency (PHEAA), better known as FedLoan – its federal student debt division – has contracted with the government to collect payments over the past 12 years. It is currently one of four major service centers used by the Department of Education and processes over $ 400 million in student loans, or roughly a quarter of the total federal student debt portfolio.

Since PHEAA began servicing federal loans in 2009, repayment programs “have become increasingly complex and complex as the cost of servicing these programs has skyrocketed,” the organization said in a statement.

In recent years, FedLoan has been tasked with handling loans for every borrower seeking Government Service Loan Forgiveness, a federal program that clears remaining debt for those in the public sector, such as nurses and social workers, after they have paid 10 years.
Most people who applied for debt forgiveness through the program were rejected. Some borrowers, after 10 years of repayments, found they did not have the correct type of federal student loan, had the wrong repayment plan, or worked for an employer who was not eligible for forgiveness. Others just haven’t made enough payments yet. The program was created in 2007, and in 2017, for the first time, anyone made enough payments to qualify.
PHEAA painted criticism from defenders of borrowers for making mistakes and providing borrowers with misinformation about qualifications. Earlier this year, this settled the lawsuit filed by Massachusetts Attorney General Maura Healy alleging it violates state and federal consumer protection laws. PHEAA agreed to conduct individual audits for all 200,000 Massachusetts borrowers it serves.

Support staff was also targeted by Massachusetts Democratic Senator Elizabeth Warren, who said in a statement Thursday that borrowers “can breathe a sigh of relief today knowing that PHEAA will no longer manage their loans.”

At a congressional hearing in April, Warren accused PHEAA of undercharging payments. CEO James Styles told lawmakers this was not true.

What happens next?

PHEAA notified the Department of Education on Thursday that it will not renew its contract after it expires on December 14. It is unclear at the moment which organization or company will process the loans next time.

Rich Cordray, chief operating officer of the Department of Education’s Federal Student Services Service, said in a statement that PHEAA has agreed to work with the government to develop a “roll-out plan to ensure a smooth transition of borrowers to another lender.”

The agency also agreed to continue working with the Federal Student Assistance Program until all borrowers are transferred to another loan, even if this happens after December 14, Cordrey added.

Federal student loan payments suspended until October 1 for all borrowers due to the freeze originally imposed by Congress last year to help borrowers during a pandemic. This advantage was later extended by the Trump and Biden administration. Key Democratic legislators called on President Joe Biden to extend the break by another six months.

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