One of the biggest student loan servicers in the country seriously mishandled a student loan forgiveness program for college grads in low-paid public-interest jobs, according to a lawuit filed Thursday in federal court by state Attorney General Letitia James.
The Pennsylvania Higher Education Assistance Agency services about $454 billion of student loans—roughly 20 percent of the nation’s student debt. Doing business as FedLoan, PHEAA received a federal contract to manage the Public Service Loan Forgiveness program, or PSLF. Then, FedLoan wreaked havoc on the lives of borrowers who were banking on student loan forgiveness, the suit alleges.
“Despite a decade of honorable public service to our state and this nation, hard-working New Yorkers have been left with nothing but the runaround and broken promises,” James said in a statement, describing the company's actions as "deceptive, unfair and abusive."
More than 98 percent of applications for student loan forgiveness under the program were denied because of the loan servicer’s negligence, the complaint alleges; because FedLoan was the only servicer, borrowers had no alternative.
“Borrowers are thus trapped with a company that disregards its responsibilities and leaves them stuck with the consequences of its errors—often thousands of dollars’ worth,” according to the complaint.
Gothamist reached out to PHEAA for comment and did not hear back.
The promise of PSLF, the loan forgiveness program, was that if a borrower worked for 10 years for a government agency or a nonprofit and made payments on their student loans each month, the federal government would wipe out the remaining debt.
The program, introduced in 2007, was intended to encourage college graduates to take jobs in service of the public good without having to worry about paying off student loans that might dwarf their paycheck. If you know any public defenders, they’re probably counting on PSLF to pay off the cost of law school.
With research suggesting Black and Latinx college grads bear heavier debt for longer than their white peers, PSLF was also aimed at increasing the share of minorities in education and other public-interest professions.
But Fedloan was allegedly “unwilling or unable to perform its most fundamental task”: counting payments borrowers made toward the 120 payments required before their debt was forgiven. Not all payment plans qualified for PSLF, and FedLoan allegedly provided no guidance about which payments were eligible. Borrowers were heartbroken over not qualifying.
Public service workers aren’t the only ones struggling. Across the country, a total of 44 million college graduates owe $1.5 trillion in student loans, and as many as 40 percent may default on their loans by 2023.
