Student loan companies gave officials inaccurate information about civil service loan cancellations, delaying or preventing them from getting their student loans canceled.
The watchdog found that student loan managers, the companies the government hired to handle the repayment process, left officials with the impression that their loans did not qualify for the function’s loan forgiveness. public, although borrowers could take steps to become eligible.
The CFPB report comes as the Biden administration faces pressure to resolve issues plaguing the PSLF program. Advocates called on the education ministry to write off the debt of officials who had been repaying their loans for at least 10 years. The military, for example, is just a group that has difficulty accessing the PSLF.
Seth Frotman, executive director of the Student Borrower Protection Center, an advocacy group, said the agency’s findings reflect what officials have been saying for years: that their progress towards forgiveness has been slowed or even hampered by misinformation from student loan companies.
“Obviously, there’s a whole generation of student loan borrowers who have given back to their communities for a decade or more only to find themselves scammed by the student loan industry,” said Frotman, who was the CFPB Student Loans Ombudsman.
Latest indication of challenges for the civil service loan forgiveness program
The report is the latest indication of the challenges plaguing PSLF, a program signed in 2007 that allows public servants and some nonprofit employees to have their federal student loans discharged after 120 monthly payments.
A small portion of applicants who requested relief – and possibly an even smaller portion of the overall population of public servants who have been repaying their loans for at least 10 years – have actually seen their debt paid off under the program.
This is in part because while the PSLF’s promise seems relatively straightforward, its demands are complex. Advocates have said for years that agent disinformation exacerbates the challenges borrowers face navigating the program – a claim echoed in the CFPB report.
While the civil service loan forgiveness promise seems relatively straightforward, its requirements are complex.
To be eligible for relief under the PSLF, borrowers must be in the right type of job – government and nonprofit work qualifies – have the right type of repayment plan; make at least 120 monthly payments on time and have the right kind of federal student loan.
Civil servants receiving federal family education loans – the type of debt that made up the bulk of federal student loans before 2010 – are not eligible for the PSLF. But they can consolidate their debt into direct loans to qualify. During calls with borrowers of FFEL loans, the services gave the impression that these borrowers “had no potential course of action to become eligible for the PSLF”, found the CFPB.
In addition, service officers asked borrowers receiving FFEL loans to determine if they were working in a skilled job before consolidating their debt into a direct loan. This is even if borrowers who apply for certification of their job, but who do not have the right type of loan, will see the form rejected.
Misinformation may have led officials to make payments on an ineligible student loan while waiting for a decision – certainly a rejection – to determine whether their employer qualified for the program, the CFPB found.
This could have delayed the access of eligible public servants to the relief. Indeed, recent data on the PSLF indicates that the consolidation problem may prevent borrowers from getting their loans cleared.
Consolidation problem slows down PSLF borrowers
Almost all of the civil service loan forgiveness applications processed by the Department of Education between November and April were from borrowers with the right type of loan and the right type of job to qualify for relief, according to government data released in June.
About 82% of these borrowers made less than 120 payments on their loans. Of these 82%, about half consolidated their loans and therefore did not obtain credit over the 120 months to work in the civil service and repay their loans before consolidation.
Scott Buchanan, executive director of the Student Loan Servicing Alliance, a business group, said the myriad of requirements of the PSLF – particularly that it treats two types of federal student loans differently – can put officers in a difficult position then that they are trying to provide advice to borrowers.
“It’s very difficult when Congress intentionally creates these barriers,” Buchanan said. “It wasn’t by accident, it was by Congress’s design to lower the cost of the program when they enacted it into law.”
When a borrower consolidates their loan, they can lose a lower interest rate and any forgiveness payments made under other student loan repayment plans.
In some cases, Buchanan added, it may not make sense for a borrower interested in the PSLF to consolidate their debt until they are sure their employer is eligible. When a borrower consolidates their loan, they may lose a lower interest rate and any forgiveness payments made under other student loan repayment plans – borrowers may not want to give up if their loans ultimately do not qualify for the PSLF, he said. .
But for advocates like Frotman, the misinformation stems from an economic incentive – once borrowers become eligible for the PSLF, their loan is transferred to a specific provider, meaning the organization they call for advice does not. ‘will benefit more financially.
Despite this dynamic, a 2020 report from the Frotman organization and the American Federation of Teachers found that the Department of Education did not provide specific advice to organizations financially involved in the FFEL program on how to advise officials with FFEL loans who learn about the benefits.
This “created this massive vacuum” in which disinformation could thrive, he said. “The ministry has such a huge obligation to right this wrong. ”
Ministry of Education, CFPB, surveillance partnership
Kelly Leon, the press secretary for the Department of Education, wrote in an emailed statement that the agency “welcomes this kind of surveillance” from the CFPB. She added that the ministry is forging partnerships with the CFPB and state attorneys general to hold officers accountable.
“The latest CFPB report raises serious concerns about the treatment of federal student loan borrowers and the quality of service provided by loan officers,” Leon wrote in the email. “All borrowers should receive the benefits to which they are entitled – and if agents prevent borrowers from receiving these benefits, the government must take action to address them.”
Education Secretary Miguel Cardona also told a Senate panel in June that the high rejection rate of PSLF candidates was “unacceptable”.
The agency has started to dig deeper into the barriers officials face in accessing pardon. Richard Cordray, director of operations for Federal Student Aid, said in a statement in June that the agency is reviewing data on the PSLF in an effort to ensure borrowers have access to the relief they are entitled to.
Cordray, who was also director of the CFPB during the Obama administration, said to Washington Post in June that the agency plans to set “rigorous” benchmarks that service providers will have to meet or see their contracts terminated.
“We will create specific and clear measurable ways to assess performance,” he said. “And the duty officers will meet them or not. And if not, there will be consequences.