This month is the first in which student loan borrowers enrolled in the Department of Education’s Public Service Loan Forgiveness program were expecting to see their student loan tab cleared. But that’s not happening for some borrowers after learning they were never actually enrolled in the programs, despite assurances from the companies servicing their debts.
The situation is a culmination of problems within the servicing industry and the complicated forgiveness program.
It also further bolsters recent findings from the Consumer Financial Protection Bureau that highlighted borrower complaints about student loan servicers mishandling the Public Service Loan Forgiveness program.
For those unfamiliar, in 2007 the government began offering a public service loan-forgiveness program that will forgive certain federal student loans for borrowers who work for government organizations and non-profit groups for 10 years and make 120 on-time monthly payments on their loans.
An Unwelcome Surprise
The New York Times spoke with one such borrower who expected to have his debt wiped away via the program this month.
However, that didn’t happen, despite the fact the man had followed the rules; making 120 on-time payments and working full-time as a teacher.
Instead, just two years before his debt was supposed to be forgiven, the man was informed that he hadn’t made a single eligible payment. That’s because he wasn’t enrolled in the correct program.
The man’s story begins back in 2002, when he entered a graduated repayment plan that allowed him to start with smaller monthly payments that grew over time as his income did.
In 2007, he signed up for the Public Service Loan Forgiveness program through his loan servicer ACS Education Services, The Times reports. The company told him that as long as he made the 120 months of payments, his debt would be forgiven. ACS left the federal student loan business, and the man’s loans were sold to Mohela in 2012.
He continued making payments, The Times reports. However, the following year, a co-worker told him that just one servicer could forgive the loans, FedLoan. So the man worked to transfer his debts to that company.
FedLoan is the company contracted by the Dept. of Education to handle the forgiveness program and determine borrower’s eligibility. It’s also party to a lawsuit by Massachusetts Attorney General Maura Healey, accused of putting borrowers at risk of losing their eligibility for forgiveness.
Nearly two years after his loan was transferred, the man found out that the repayment plan he entered in 2002 wasn’t eligible for the forgiveness program. That meant that none of the payments the man had made counted toward forgiveness. He’d have to start all over.
The news was in contradiction to what servicers had been telling him. He tells The Times that he was told his loan was in “good status” by each company.
A rep for the owner of his first servicer ACS told The Times they could not comment on the man’s loans, while a rep for Mohela (the second servicer) didn’t have specific records noting what the man was told.
A rep for FedLoan tells The Times that the company informed the man of issues with his loan several times.
The Times, in reviewing the man’s documents, did find a notice in 2014 that stated the borrower hadn’t made any eligible payments.
The only problem was that the notice was on the back of a statement and not clearly visible to the borrower.
It’s a missed sign that several borrower likely made, The Times reports.
“There is going to be an enormous crush of borrowers who think they are eligible only to find that they are not,” Seth Frotman, the student loan ombudsman at the CFPB, said a statement. “We need to get ready for it.”
Just Another Issue
In fact, some borrowers have already accused the government of failing to keep its promise to forgive loans. As cited in a lawsuit against the Dept. of Education, some borrowers reported they believed they were fulfilling the program’s requirements when they weren’t.
According to a lawsuit [PDF], filed by four previously qualified participants and the American Bar Association, the Department of Education acted “arbitrarily and capriciously” when it changed its interpretation eligibility requirements without explanation.
While it’s fairly simple to determine what a government agency is, finding a qualified non-profit is more difficult. For that reason, the Dept. allowed prospective program participants to fill out an Employment Certification for Public Service Loan Forgiveness form.
The forms, which the Department encourages participants to fill out each year, are reviewed by FedLoan Servicing.
But at some point in the last several years, FedLoan began telling people who had previously been qualified for the forgiveness program that they were no longer eligible to have their loans forgiven. What’s more, the decision was retroactive, meaning none of the time they’d spent working toward the forgiveness goal would be counted.
After receiving such letters, the borrowers sued the Department of Education to find out why the changes were being made.
The Dept. of Education replied to the lawsuit, noting in a filing that the FedLoan approval letter was never a reflection of a “final agency action on the borrower’s qualifications” for the program.