Following recent news that the Public Service Loan Forgiveness (PSLF) program could be on the chopping block, it’s now come to light that the program was potentially mismanaged by one of the country’s largest loan servicers, according to the New York Times.
Massachusetts Attorney General Maura Healey filed a lawsuit today against the Pennsylvania Higher Education Assistance Agency (PHEAA), which operates under the name FedLoan. The lawsuit claims mismanagement of forgiveness programs for public service workers led to hundreds of thousands of dollars in increased student loan payment costs.
“This company’s actions have jeopardized the financial futures of teachers and public servants across the country,” Healey said in a statement.
A quick breakdown of PHEAA, FedLoan, and PSLF
As one of the few student loan servicers under contract with the Department of Education, PHEAA services more than a quarter of the $1.4 trillion in total student loans on behalf of various lenders. Additionally, PHEAA’s contract allows it to service all student loans enrolled in Public Service Loan Forgiveness (PSLF) and the Teacher Education Assistance for College and Higher Education Grant Program (TEACH) exclusively.
As a loan servicer, PHEAA acts as an intermediary between lenders and borrowers, helping to facilitate payments and assist borrowers who struggle to repay their loans. Most borrowers, however, know the agency by the name under which it operates: FedLoan. This arm of the agency handles student loan servicing, as PHEAA also offers additional student aid services and programs.
PSLF, on the other hand, is a federal program designed to help borrowers who work in public service shed the burden of student loan debt. By committing to 10 years of working for a non-profit, government, or other qualifying public service position while making consistent payments, program participants are eligible to have their remaining balance discharged, tax-free.
The first round of borrowers eligible for PSLF began making qualifying payments as of October 2007, so no program participants have completed the 10 years quite yet.
As the student loan servicer, PHEAA/FedLoan is responsible for guiding borrowers in submitting PSLF eligibility forms, facilitating qualifying payments, and processing annual income certification paperwork required to remain on income-driven repayment plans, in which most PSLF applicants are enrolled. Healey alleges, however, that the whole process has been a mess.
Why the Massachusetts attorney general is suing
According to Healey, PHEAA has been “unreasonably slow” in processing income certification paperwork. To deal with the backlog, PHEAA puts many borrowers into forbearance, which pauses student loan payments.
Unfortunately, those months in forbearance don’t count towards the 10 years of payments borrowers must make to earn PSLF. This extends the amount of time they have to remain in an often lower-paying public service job, continue accruing interest, and funneling a portion of monthly income toward student loan debt.
Worse, this practice leads to credit problems, the filing claims, as payments appear outstanding on reports. This can impact borrowers’ ability to qualify for other types of credit and loans, not to mention, their short- and long-term financial planning.
Then there’s the issue of a technical error that led to overcharging about 1 percent of accounts. This equated to tens of thousands of borrowers who have still not received a refund, the lawsuit filing claims.
PHEAA states that the company disagrees with the allegations of mismanagement, but will work with the Education Department to resolve any issues.
What should PSLF hopefuls do?
The fact that PSLF has been mishandled isn’t much of a secret. The Consumer Financial Protection Bureau (CFPB) recently reported that as many as 25 percent of borrowers could be eligible for the program, yet only about 500,000 are pursuing it.
Further, it reviewed more than 11,000 federal student loan complaints that were filed between March 2016 and February 2017, finding an array of issues with the program. Most of these problems stemmed from unhelpful loan servicers.
Ultimately, the best thing you can do as a borrower is to take things into your own hands. Don’t rely on your servicer to alert you of opportunities for forgiveness or hold your hand through the process.
You can learn all about the program in our Complete Guide to PSLF and find out what steps to take to determine your eligibility. You can also use our PSLF calculator below to determine if you could benefit from the program.
Public Service Loan Forgiveness Calculator
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.23% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
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|2.47% – 6.23%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|