A new report from the federal Consumer Financial Protection Bureau (CFPB) has found that student loan managers have systematically mismanaged a key student loan cancellation program, often providing false information or distorting rights and borrower options.
The CFPB, now under new leadership following the replacement of key Trump-era officials, reasserted itself as investigator and enforcer of consumer protection issues, including the botched student loan service . New surveillance report released today highlights some of the important and widely documented issues with the Public Service Loan Forgiveness Program (PSLF).
Public Service Loan Forgiveness is a popular program that allows some federal student loan borrowers to obtain their student loan forgiveness by serving in government and nonprofit positions for 10 years or more. more. While the PSLF program may seem simple enough, its requirements are complicated, and the program has been plagued by problems for years. Although the program is often described as a 10-year program, the PSLF technically requires 120 “eligible payments,” which must meet several eligibility criteria:
- Payments must be made on a Direct federal student loan. Not all federal student loans come under the direct loan program. In particular, Family Federal Education Loan (FFEL) program loans are not eligible for PSLF. FFEL loans may be eligible if they are bundled into a federal direct loan, although bundling direct loans can have significant consequences in some cases.
- Payments must be made as part of a income based repayment plan like the IBR, PAID, or REFUND. Payments made under the standard 10-year plan are also eligible, although this will pay off the underlying federal loan in full within 10 years. Other repayment plans, such as extended plans and progressive plans, are not eligible.
- The borrower must make payments on time while working as a full-time employee for an agency or government entity, or a 501 (c) (3) non-profit organization. Other nonprofits that are not 501 (c) (3) may be eligible in certain limited circumstances, although the Department of Education will make decisions on a case-by-case basis.
The CFPB report found numerous problems with the administration of the PSLF program, and the agency blamed service officers for many of these problems. The agency “uncovered a number of ways in which student loan officers were giving borrowers incorrect information, leading to missteps that could cost consumers thousands of dollars,” CFPB said in a statement summarizing the results. “For example, the examiners found that service agents misled consumers into believing that they could not access the PSLF if they had older loans under the federal loan program. family education (FFELP), even if they could access the PSLF by consolidating FFELP loans into direct loans. ”The report also highlighted frequent problems with borrowers trying to certify that their job is PSLF eligible. The CFPB also found that service providers incorrectly allocated monthly payments and incorrectly calculated their monthly payment amounts. The CFPB concluded that many of these practices “have caused or are likely to cause significant harm” to student loan borrowers.
Borrower advocates criticized student loan managers and the US Department of Education after the CFPB report was released. “The CFPB’s findings confirm that the student loan industry has embarked on a widespread and illegal scheme to deny civil servants the cancellation of loans obtained through their service to our country and our communities. mentionned Seth Frotman, Executive Director of the Student Borrower Protection Center and former CFPB Student Loan Ombudsman. “The ministry allowed a whole generation of dedicated teachers, nurses and other public servants to get ripped off by student loan companies.”
The civil service loan forgiveness program has long suffered from problematic approval rates. When student loan borrowers were first eligible to apply for a waiver under the program at the end of 2017, the PSLF had a abysmal initial approval rate by only 1%. The latest statistics show that the PSLF has seen only marginal improvement since then, with an approval rating of just 2%. The Education Department is also grappling with a continuing backlog of tens of thousands of PSLF applications, forcing some borrowers to wait six months or more for determinations.
Earlier this year, more than 100 organizations sent a letter Education Secretary Miguel Cardona, calling on him to use pandemic emergency authorities to conduct a full 90-day audit of the “broken” civil service loan forgiveness program and to write off debt loan from all student loan borrowers who have completed ten or more years of public service, regardless of their specific compliance with the complex eligibility criteria of the PSLF program. Rights groups and Congressional Democrats have also called on the Biden administration to extend the current hiatus on most federal student loan payments, which currently expires on September 30, until programs such as the PSLF can be corrected.
So far, the Ministry of Education has not acted. The Biden administration recently announced the start of a long negotiated rule-making process to review and potentially revise key federal student loan programs, including the forgiveness of public service loans. But any significant change could take years.
Meanwhile, advocates for student borrowers are losing patience. “Secretary Cardona must use his authority to right this enormous wrong and provide debt relief to these borrowers,” Frotman said.
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