Loan Servicers Face PSLF Program Lawsuits: What You Need to Know

public service loan forgiveness

In recent months, student loan servicers have faced lawsuits related to their handling of Public Service Loan Forgiveness (PSLF). In October 2017, the first cohort of PSLF program participants eligible to receive student loan forgiveness after working in public sector jobs began filing their requests.

At the same time, though, some borrowers partway through the program were dismayed to discover that they might have to start making their 120 payments all over again. They allege that student loan servicers didn’t give them vital information about PSLF, assuring them that they were on track for loan forgiveness when they actually weren’t.

Latest student loan lawsuits over Public Service Loan Forgiveness

Student loan servicers have been under fire in recent years, facing lawsuits from the Consumer Financial Protection Bureau (CFPB) and various state attorneys general. However, the latest round of lawsuits are less about general “unfair and deceptive practices” and more about the PSLF program specifically.

A recent lawsuit, filed against the loan servicer Great Lakes (which was recently bought by Nelnet), alleges that the company provided “false information” about qualifications for Public Service Loan Forgiveness. According to CNN Money, the student loan lawsuit alleges money damages are in order because it will be more expensive — and take longer — to pay off the outstanding student loan debt.

CNN Money also reports that there are PSLF-related lawsuits against Navient. Spokespeople for both companies declined to comment on the litigation, but they insist that they will defend themselves in court.

According to the lawsuits, student loan servicers indicated that borrowers were on track to receive loan forgiveness when, in fact, some of their loans didn’t qualify for the program.

“Unfortunately, it’s probably a lack of training for customer service representatives,” said Jay Fleischman, a student loan lawyer. “It doesn’t let servicers off the hook, but many of the representatives dealing with borrowers probably had no idea that they were offering bad information.”

Not all federal loans qualify for PSLF

At the heart of the issue is the fact that not all federal loans qualify for the PSLF program. Back before the Direct Loan Program, there was the Federal Family Education Loan (FFEL) Program. Those loans were originated by private lenders and insured by the government.

However, the FFEL Program was phased out in favor of the Direct Loan Program. No new FFEL loans were made after June 30, 2010. The loans are still being repaid by some borrowers, though.

This is where things get a little tricky. The College Cost Reduction and Access Act of 2007 created the PSLF program for federal loan borrowers who work in public service and make 120 on-time qualifying payments. However, even though FFEL was a federal program, it featured loans made by private entities. That made FFEL loans ineligible for PSLF.

“The way to qualify FFEL loans for Public Service Loan Forgiveness is to consolidate them using a Direct Loan,” said Fleischman. “But many of my own clients don’t realize this until I tell them, and servicers didn’t do a good job of training their people to answer questions.”

Indeed, the CFPB issued a report in June 2017 highlighting three main complaints against the way servicers handle the PSLF program:

  1. Incorrect or insufficient information about eligibility, including types of qualifying loans
  2. Missed qualifying payments due to processing delays
  3. Problems with the job certification process resulting in miscounted payments

“Servicers may say they are simply the agents for the government and shouldn’t be held accountable for some of these problems,” Fleischman said. “I would argue that, as the government’s agents, they serve the public and they should make better efforts to provide accurate information, especially since they benefit from this arrangement.”

What to do if you are in the PSLF program

If you aren’t sure about the eligibility of your loans, now is the time to double-check. You can use the National Student Loan Data System to check your loans and see which program they belong to. If you have outstanding balances on FFEL loans issued prior to 2010, there’s a good chance you aren’t going to receive forgiveness for them.

Fleischman recommends consolidating those loans through the Direct Loan Program as quickly as possible in order to start the clock on qualified payments.

Consider joining a student loan lawsuit if you feel your servicer has misled you about your PSLF qualifications. CNN Money reports that the lawyer handling the Navient PSLF lawsuits is trying to obtain class-action status. A student loan lawyer can help you decide if it’s worth it to sue a servicer or join an existing lawsuit.

If you do talk to your servicer about your loans and your PSLF eligibility, make sure you go in educated. “You have to ask them what program your loans belong to,” Fleischman said. “And in many cases you need to know the answers to your questions already. The best thing you can do is research and know your stuff.”

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