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 SoFi.
2 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 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.50% APR (with Auto Pay) to 7.27% 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 April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
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3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
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.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.81% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|