Natalie Korman
August 2017

Massachusetts Sues Major Loan Servicer Over “Unfair Practices”

The office of Massachusetts attorney general Maura Healey has recently filed a lawsuit against the Pennsylvania Higher Education Assistance Agency, one of the nation’s major loan servicers. PHEAA operates its federal loan services under the name FedLoan. The attorney general had been threatening to sue the servicer, which is a quasi-governmental agency, since June if they did not resolve a slew of issues.

The allegations against PHEAA are significant. The suit accuses the company of a series of processing delays, payment plan mix-ups, and overcharging. These delays and errors routinely prolonged borrowers’ timelines until forgiveness, invalidated their eligibility for certain programs, or simply erroneously took money out of their pockets, the attorney general says.

Public Service Loan Forgiveness Delays ­­

PHEAA is the sole servicer of the Department of Education’s Public Service Loan Forgiveness program, which forgives loans after at least 10 years of repayment concurrent with qualifying employment. (The program is the center of another lawsuit against the Department of Education.)

One of the main requirements to qualify for the PSLF program is 120 qualifying payments. Delays and mistakes in processing payments have led to the postponement of forgiveness for many borrowers.

According to the suit, PHEAA “failed to process borrowers’ income-driven repayment program applications timely and properly, thereby depriving borrowers of the opportunity to make qualifying monthly payments.” PHEAA then placed borrowers with delayed applications into forbearance, a loan status that doesn’t allow for qualifying payments under PSLF criteria.

Long delays in processing when borrowers’ loans were getting transferred into the system also resulted in missed opportunities to make qualifying payments, the suit says.

TEACH Grants Lost

PHEAA also services the Teacher Education Assistance Higher Education Grant program. TEACH provides education grants to academically exceptional students who go on to fulfill certain requirements during four years of full-time teaching. The criteria include teaching a high-need subject in an under-served area. If the requirements are not fulfilled, the grant must be paid back in the form of a loan. Teachers must submit certification forms to ensure they are meeting the program’s criteria.

The lawsuit claims processing delays on PHEAA’s side threw teachers out of compliance with the program, reverting their grants to loans. Teachers who might have been fully qualified for the program and timely with their own submission of necessary forms would still have been forced into debt, the suit says.

Overcharging Borrowers

Finally, the lawsuit says PHEAA had a “billing system logic error” that overcharged tens of thousands of borrowers. Despite their knowledge of the error, the suit claims, PHEAA continued to collect on the incorrect charges, failed to rectify the issue, and failed to inform borrowers of the issue.

Seeking Restitution

The attorney general seeks “restitution to borrowers injured by PHEAA’s unfair or deceptive acts and practices.”

A spokesman for PHEAA responded by saying the agency disagrees with the suit but “remain committed to appropriately resolving any outstanding borrower issues.”

PHEAA services more than a quarter of the nation’s trillion-dollar-plus student loan debt.

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Natalie Korman

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