By Owen Daugherty, NASFAA Staff Reporter
Student loan servicers were found to have engaged in a pattern of providing inaccurate information to borrowers about their eligibility for the Public Service Loan Forgiveness (PSLF) program, according to a new report from the Consumer Financial Protection Bureau (CFPB).
The report detailed student loan servicers’ misleading and deceptive practices, which may have hindered and delayed borrowers’ entry to the program and their ability to qualify for loan forgiveness.
The findings from the report represent the latest evidence underscoring a flawed PSLF program and lead to larger questions regarding if the student loan servicers contracted by the Department of Education (ED) will remain in place under the Biden administration.
Education Secretary Miguel Cardona has already said it’s a top priority to fix the much-maligned program and ED recently announced plans to eventually rewrite the federal regulations governing the program.
The Student Borrower Protection Center, an advocacy group led by former CFPB Student Loan Ombudsman Seth Frotman, alleged the findings depict a widespread problem in the student loan servicing industry.
“The CFPB’s findings confirm that the student loan industry has been engaged in a widespread, illegal scheme to cheat public servants out of the loan forgiveness earned through their service to our country and in our communities,” Frotman said in a statement. “The Department allowed an entire generation of dedicated teachers, nurses, and other public service workers to be ripped off by student loan companies. Secretary Cardona must use his authority to right this tremendous wrong and deliver debt relief to these borrowers.”
Three key misrepresentations were identified in the report. Firstly, examiners identified a deceptive act or practice where servicers told Federal Family Education Loan Program (FFELP) borrowers that they could submit their employer certification forms (ECF) to receive a determination on whether their employers are eligible employers for PSLF, even though FFELP borrowers who submit an ECF prior to consolidating into a Direct Loan (DL) will be rejected, without any determination about their employer’s PSLF eligibility.
“The servicers’ representations are likely to mislead borrowers into believing that they should submit an ECF prior to consolidation to receive confirmation that their employers are eligible,” according to the report. “Consumers’ interpretation was reasonable under the circumstances and they were likely to be misled by the servicers’ representations, given the specificity of agents’ statements and the fact that agents routinely provided information about the PSLF program.”
Secondly, the report found servicers engaged in a deceptive practice by advising borrowers with FFELP loans that the loans could not become eligible for PSLF. The loans can in fact become PSLF eligible, they just need to be consolidated into a DL first.
“Examiners found that during calls servicers represented to consumers with FFELP loans that they had no potential course of action to become eligible for PSLF,” the report stated.
Finally, servicers were found to have deceived borrowers by telling them that only employers who are classified as nonprofits are eligible under the PSLF program. This is not the case, as qualifying employers include local, state, federal or tribal government entities, in addition to nonprofit entities.
“Servicers stated in calls that consumers could be eligible for PSLF if they worked for nonprofits but did not mention that government employees and other types of employees are also eligible,” the report noted. “This statement created the net impression that only employees of nonprofits were eligible.”
Though individual loan servicers were not identified in the report, the findings paint a worrying picture considering the importance loan servicers play in assisting borrowers through the repayment process.
"While I don’t know whether the identified concerns were with a group of accounts or just a couple out of the millions of federal loans serviced every day, what we all know is that the barriers that Congress intentionally put into place have made it harder for every borrower to access PSFL and the confusing requirements that vary by law for a borrower’s situation or loan type are challenging and overly complicated to administer," Scott Buchanan, executive director of the Student Loan Servicing Alliance, told NASFAA in a statement. "Servicers have long publicly supported simplifying the program - and for the CFPB and ED to agree on and proactively provide some unified and consistent guidance."
The report comes on the heels of data recently released by ED showing over a six-month time period about 98% of applications for forgiveness through PSLF were denied.
PSLF has long been scrutinized, with a 2019 report detailing that only 1.1% of applicants had their request for forgiveness approved. A recent report found that over the course of a decade, ED failed to provide any regulation, guidance, or direction to student loan companies that advise public service workers about their right to PSLF.
Publication Date: 7/1/2021