The Massachusetts attorney general on Wednesday sued a federal student loan servicer for "undermining" the federal Public Service Loan Forgiveness (PSLF) Program, claiming the servicer caused some borrowers to lose their benefits.
Attorney General Maura Healey filed the lawsuit against the Pennsylvania Higher Education Assistance Agency (PHEAA), which is operating as as FedLoan Servicing, the servicer managing PSLF borrower accounts for the Department of Education (ED). The lawsuit claims the servicer violated state and federal law by allegedly causing borrowers who work in public service to lose their benefits under PSLF and the Teacher Education Assistance for College and Higher Education (TEACH) Grant program, which it also services.
"This company's actions have jeopardized the financial futures of teachers and public servants across the country," Healey said in a statement. "These federal programs allow Americans from all backgrounds to dedicate their careers to serving others. My office will protect PSLF and hold PHEAA accountable for forcing these students further into debt."
The lawsuit claims that PHEAA knowingly overcharged PSLF borrowers, failed to process borrowers' income-driven repayment plan applications in a timely and appropriate manner, and prevented them from making qualifying monthly payments to work toward receiving their loan forgiveness. To account for its failure to properly process borrowers' IDR applications, PHEAA put borrowers into forbearance, which is not a qualifying repayment plan for loan forgiveness, the lawsuit claimed.
"PHEAA is aware that its delays in processing IDR applications have caused borrowers to lose the opportunity to make qualifying payments for loan forgiveness," the lawsuit said. "In the last two years, PHEAA has received numerous complaints about processing delays and issues relating to PSLF. Nonetheless, PHEAA has not rectified the problem."
"Borrowers have been harmed and have suffered substantial injury as a result of PHEAA's conduct because they will be obligated to make payments on loans for longer than required and because the delay in obtaining loan forgiveness interferes with their short and long-term financial planning," the lawsuit continued.
With respect to those with TEACH Grants, the lawsuit claimed PHEAA's actions have caused grants to be converted to loans. According to the lawsuit, PHEAA has not processed teachers' annual certification forms properly and timely, and does not give individuals enough time to make changes to their forms, if necessary. As a result, some teachers' grants are being converted to loans.
Additionally, the lawsuit claimed a defect in PHEAA's servicing system resulted in overcharges for hundreds of Massachusetts borrowers, and roughly 1 percent of its borrower population nationwide.
In a statement released on Wednesday, PHEAA said it "does not agree with the allegations made by the Massachusetts Attorney General’s Office with regards to their findings." Though it refuted the lawsuit's claims, "PHEAA remains committed to appropriately resolving any outstanding borrower issues while following the U.S. Department of Education’s policies, procedures, and regulations as mandated by the Agency’s federal contracts" and will work with ED's Office of Federal Student Aid (FSA) "to help resolve any issue identified by the Massachusetts Attorney General," according to the statement.
The federal servicer is also drawing scrutiny from another ongoing lawsuit between the American Bar Association (ABA) and ED. In that case, four individual lawyers along with the ABA in December sued ED after the agency retroactively told the borrowers their employers did not meet PSLF requirements. The lawyers had submitted Employment Certification Forms that were previously approved by FedLoan Servicing, signaling they were on track to receive loan forgiveness. But recent court filings from ED have given the impression that borrowers cannot rely on FedLoan Servicing to guarantee whether they qualify.
Publication Date: 8/24/2017