A major reorganization of the student loan service is in the works as one of the main student loans servicing Department of Education tries to go out of business.
The Pennsylvania Higher Education Support Authority (PHEAA), which operates FedLoan Servicing, has advised its staff that it plans to end its federal student loan service activities when the Department’s contract expires in December this year. The contract was originally scheduled to end in 2019, but has been renewed several times. The news was first reported PennLive…
PHEAA and FedLoan Servicing are accused of widespread mismanagement of federal student loans. As the key support staff appointed by the Department of Education to manage key federal student loan programs such as the Public Service Loan Forgiveness (PSLF) and TEACH Grants, the service staff have been scrutinized for what critics have called deep and systematic issues.
PHEAA and FedLoan Servicing recently settled lengthy lawsuit filed by Massachusetts Attorney General Maura Healy. Healy’s office argued that FedLoan Servicing caused processing delays and adopted erroneous entitlements that forced people to be lenient in lieu of the appropriate PSLF repayment plan, or it could not properly calculate the corresponding PSLF payments. These actions, Healy argued, forced thousands of borrowers eligible for PSLF to delay payments longer than they would otherwise need. Healy also accused PHEAA of mismanaging the TEACH Grant program, causing teachers in underserved communities to mistakenly convert their grants into loans. PHEAA found no wrongdoing. The Ministry of Education recently announced that the TEACH Grant Program will overhaul…
Recent report released by the Consumer Financial Protection Bureau (CFPB) confirms that widespread problems with the management of the PSLF program continue. While the report did not highlight specific student loan service personnel, the CFPB noted that service companies often misled student loan borrowers about their eligibility and created problems for borrowers who were trying to verify that their work and previous payments met PSLF requirements. … The CFPB found that many of these practices “caused or could cause significant harm” to borrowers.
Senator Elizabeth Warren (Massachusetts) fried PHEAA CEO James Styles at a Senate committee hearing in April. Noting that 98% of PSLF applicants were rejected, Warren said, “It’s your job to make sure people who follow the rules are relieved.” She pointed out that lawsuits against PHEAA alleged that FedLoan Servicing was “systematically understating” PSLF payments, and that previous DOE inspections found that PHEAA’s automated system had created errors and incorrectly disqualified PSLF payments. Mr Steely dismissed criticism that student loan companies were to blame and instead drew attention to the complexities of federal student loan programs themselves.
The PHEAA announcement follows the U.S. Department of Education hiring Richard Cordray to manage the federal student loan system. In this capacity, Cordray will oversee staff contracted by the Student Loan Service Department. Cordray is a former CFPB director, and observers have suggested that his hiring may herald impending crackdown on student loan servicers.
It is now too early to say exactly how the shake-up will affect student loan borrowers. But borrowers are more likely to transfer their student loan accounts to another student loan service provider, which can sometimes be a disruptive process. CFPB celebrated in 2015after the last major overhaul of the Service Department, that “translation service can create confusion when companies have different policies and procedures related to posting, distributing and processing payments.”