Education Minister Miguel Cardona testifies before the Labor, Health and Social Services, Education … [+]
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A new report from the Federal Consumer Financial Protection Bureau (CFPB) found that student loan providers have systematically mismanaged an important student loan allocation program, often providing misinformation or misrepresenting the rights and opportunities of borrowers.
Now under new leadership after replacing key Trump-era officials, the CFPB has once again held its own as a key investigator and enforcer on consumer protection issues, including sloppy student loan processing. The new Supervisory Report released today highlights some of the significant, well-documented issues with the Public Service Lending Program (PSLF).
Public Service Loan Forgiveness is a popular program that enables certain state student borrowers to cancel their student loans by serving in government and nonprofit positions for 10 years or more. The PSLF program may seem simple, but its requirements are complex and problems have plagued the program for years. Although the program is often described as a 10-year program, PSLF technically requires 120 “qualifying payments” that must meet several eligibility criteria:
- Payments must be made on a. respectively Direct student loan from the federal government. Not all federal student loans are granted under the direct loan program. In particular, the Family Federal Education Loan (FFEL) loans do not qualify for the PSLF. FFEL loans may qualify when consolidated into a federal direct loan, although direct loan consolidation can have significant ramifications in some cases.
- Payments must be made under one Income-based repayment plan like IBR, PAYE or REPAYE. Payments under the standard 10-year plan also qualify, although that would repay the underlying federal loan in full within 10 years. Other repayment plans – such as advanced plans and tiered plans – do not qualify.
- The borrower must make timely payments while working full-time for either a government agency or agency or non-profit organization under 501 (c) (3). Other nonprofits that are not 501 (c) (3) s may qualify in certain limited circumstances, although the Department of Education decides on a case-by-case basis.
The CFPB report identified numerous problems with the management of the PSLF program, and the agency blamed service providers for many of the problems. The agency “had found a number of ways that student loan intermediaries were giving wrong information to borrowers, leading to missteps that could cost consumers thousands of dollars,” the CFPB said in a statement summarizing the findings. “For example, the auditors found that service providers misled consumers into believing that they would not have access to PSLF if they had older Federal Family Education Loan Program (FFELP) loans despite having access to PSLF by consolidating FFELP loans into direct loans. ”The report also highlighted common problems associated with borrowers attempting to certify their employment qualifies for PSLF. The CFPB also found that service providers had not properly allocated monthly payments and incorrectly calculated their monthly payment amounts. The CFPB concluded that many of these practices “caused, or likely to cause, material harm” to student loan borrowers.
Borrower lawyers hit student loan brokers and the US Department of Education after the CFPB report was released. “The CFPB results confirm that the student loan industry is involved in a widespread, illegal program to defraud officials out of the lending they have earned in serving our country and communities,” said Seth Frotman, executive director of the Student loan protection center and former student loan ombudsman at the CFPB. “The department has enabled an entire generation of dedicated teachers, nurses, and other civil servants to be ripped off by student loan companies.”
The Public Service Loan Forgiveness program has long suffered from problematic approval rates. When student loan borrowers first became eligible to file a waiver under the program in late 2017, PSLF had a disastrous initial approval rating of just 1%. The latest statistics show that PSLF has improved only marginally since then, with an approval rating of just 2%. The Department of Education is also grappling with a persistent backlog of tens of thousands of PSLF applications, forcing some borrowers to wait six months or more for determinations.
Earlier this year, over 100 organizations sent a letter to Education Minister Miguel Cardona asking him to use the emergency pandemic authorities to conduct a full, 90-day review of the “broken” public service loan program conduct and cancel student loan debt for all student loan borrowers who have ten or more years of public service regardless of their specific fulfillment of the complex eligibility criteria of the PSLF program. Stakeholders and Democrats in Congress have also urged the Biden administration to extend the current hiatus on most federal student loan payments, which currently expires on Sept. 30, until programs like PSLF can be resolved.
The Ministry of Education has not done anything so far. The Biden government recently announced the start of a lengthy negotiated rulemaking process to review and potentially revise key federal student loan programs, including public sector loans. But major changes could be years away.
Meanwhile, student loan borrowers advocates are losing patience. “Secretary Cardona must use his authority to correct this tremendous injustice and grant these borrowers debt relief,” Frotman said.
further reading
New data shows that most who apply for this student loan program are turned down
Over 500,000 are eligible for student loan waivers, but the government has not acted, the group says
Biden Administration Announces Major Overhaul of Income-Based Repayment and Allocation Programs for Student Loans
Biden’s Student Loan Forgiveness Review: Should You Take Steps Now to Relieve Student Debt Later?
source https://collegeeducationnewsllc.com/student-loan-servicers-often-harm-borrowers-seeking-public-service-loan-forgiveness/
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