US Senator Elizabeth Warren, a Democrat of Massachusetts, speaks to reporters before voting on a … [+]
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A major student loan service reorganization is in the works as one of the Department of Education’s top student loan administrators tries to get out of business.
The Pennsylvania Higher Education Assistance Authority (PHEAA), which operates FedLoan Servicing, has notified its employees that it plans to end its state student loan servicing activities when its contract with the department ends in December. The contract was originally supposed to end in 2019 but has been renewed several times and PHEAA will not accept or request any further renewal. The news was first reported by PennLive and Politico.
PHEAA and FedLoan Servicing have been accused of widespread mismanagement of federal student loans. As the primary servicer appointed by the Department of Education to manage major federal student loan programs such as Public Service Loan Forgiveness (PSLF) and TEACH Grants, the servicer has been screened for deep, systematic issues, critics say.
PHEAA and FedLoan Servicing recently resolved a long-running lawsuit filed by Massachusetts Attorney General Maura Healey. Healey’s office alleged that FedLoan Servicing caused processing delays, made false eligibility determinations that forced people to forbear in lieu of a qualifying PSLF repayment plan, or that qualifying PSLF payments were not counting properly. These measures, Healey argued, resulted in thousands of PSLF-eligible borrowers being paid back longer than they otherwise had to be. Healey also accused PHEAA of mishandling the TEACH scholarship program, which resulted in teachers working in underserved communities mistakenly converting their scholarships into loans. PHEAA did not admit any wrongdoing. The Ministry of Education recently announced that the TEACH scholarship program will be revised.
A recent report by the Consumer Financial Protection Bureau (CFPB) confirms that widespread problems with the administration of the PSLF program persist. Although the report did not identify a specific student loan provider, the CFPB found that service companies often misled student loan borrowers about their rights and opportunities, creating problems for borrowers trying to prove their employment and previous payments were for PSLF are qualified. The CFPB found that many of these practices “caused or would likely cause material harm” to borrowers.
Senator Elizabeth Warren (D-MA) had a barbecue at a hearing of the Senate Committee PHEAA CEO James Steeley in April. Noting that 98% of PSLF applicants have been turned down, Warren said, “It’s your job to make sure that people who’ve followed the rules get relief.” She noted that lawsuits against PHEAA alleged that FedLoan Servicing “systematically undercounts” PSLF payments and that previous Education Department audits found that PHEAA’s automated system was flawed and improperly disqualified PSLF payments. Mr Steeley rejected criticism that companies were to blame for student loan servicing and instead pointed out the complexities of the federal student loan programs themselves.
PHEAA’s announcement follows Richard Cordray’s hiring by the US Department of Education to manage the state student loan system. In this role, Cordray will oversee the department’s contracted student loan brokers. Cordray is the former director of the CFPB, and observers have speculated that his hiring could spell threatened action against student loan administrators.
It is too early to know exactly what impact the switch will have on student loan borrowers. However, borrowers will have their student loan accounts transferred to another student loan service provider, which can be a disruptive process at times. The CFPB noted in 2015, following the ministry’s last major revision of the service, that “remittances can create confusion when companies have different policies and procedures for posting, assigning and processing payments”.
further reading
New federal report: Student loan service providers often harm borrowers who seek forgiveness for public service loans
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 Comprehensive Overhaul of Income-Based Repayment and Allocation Programs for Student Loans
source https://collegeeducationnewsllc.com/this-major-loan-servicer-is-ending-its-contract/
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