According to a Washington Post article that cites a report released by the Consumer Financial Protection Bureau (CFPB), FedLoan Servicing has struggled with “flawed payment processing, botched paperwork, and inaccurate information.” This has interfered with public service workers from receiving student loan forgiveness granted by the Public Service Loan Forgiveness (PSLF) program.
The PSLF was originally implemented under the Bush administration in 2007 to incentivize college graduates to pursue careers as teachers, public defenders, social workers, and other public service positions. If you work in a job that qualifies under the terms of public service for the program, your student debt will be wiped away after 120 qualifying monthly payments.
Many have criticized the program as a way for graduates and doctors to subsidize their education. In the recent proposal made by the Trump administration, the PSLF would be terminated. Anyone taking out a loan after July 1, 2018 will not be able to use the PSLF. However, anyone that is already on track will not be affected by this if the proposal goes through.
In the CFPB report, borrowers were not informed that their loans do not qualify for PSLF after making years of payments. One example provided in the report told the story of a consumer who was told after consolidating their loans that they were set for PSLF. The servicer informed the consumer that there was “no form to submit for loan forgiveness until [they] completed 120 payments over 10 years.” Unfortunately, after making payments for 4 years, the consumer found out that they were not in PSLF.
Another example of the servicer mishandling borrowers pursuing the PSLF involves military borrowers. One borrower said that their servicer did not explain that their loans were not eligible for PSLF. It was only after the borrower had left the military due to a service-related injury that the servicer said they needed to consolidate their loans to become eligible. Hopefully, with recent changes made to industry practices, military borrowers will be identified on a monthly basis in the effort to prevent another situation like the one above from happening again.
The final example, though there are more in the report, explains how there are “delays and defects in the loan consolidation process” due to the servicer not providing correct information. The report states that it should take 30 days to complete the process, but borrowers said that it could take up to 6 months for the consolidation to be completed. One piece of information that the servicer incorrectly reported was the borrowers’ outstanding balance to the PSLF servicer. Others have complained that the servicer left out some individual loans in the consolidation process. In both cases, these errors can “prevent the borrower from making qualifying payments.”
According to the Washington Post, “of the 8,500 complaints the bureau reviewed from March 2016 to February, 10 percent of them involved the loan forgiveness program.” Currently, FedLoan, which is part of Pennsylvania Higher Education Assistance, is the only servicer appointed by the Education Department handling loans by borrowers pursuing PSLF.
As we approach the first wave of forgiveness this year in October, the Education Department finds itself in a lawsuit with borrowers. According to the article” Student Loan Forgiveness Program Approval Letters May Be Invalid, Education Dept. Says” published by the New York Times, the agency suggested in its legal filing that “borrowers could not rely on the program’s administrator to say accurately whether they qualify for debt forgiveness. The thousands of approval letters that have been sent by the administrator, FedLoan Servicing, are not binding and can be rescinded at any time.” This has raised serious questions about whether or not the program is successfully achieving its intended purpose.