As the Biden administration’s expansion of a key student loan forgiveness program kicks into high gear, federal regulators are starting to hear complaints from borrowers about servicers misleading them on the program’s new requirements. And at least one administration official is warning loan servicers that there could be serious consequences if the misconduct continues.
Here’s the latest.
Student Loan Forgiveness Expansion for Public Service Workers
Last October, President Biden used executive action to temporarily relax key eligibility requirements for the Public Service Loan Forgiveness (PSLF) program. PSLF provides federal student loan forgiveness for borrowers who devote their careers to nonprofit or government work. PSLF has had restrictive rules which limited relief to only certain types of federal student loans that were repaid under specific kinds of repayment plans based on a borrower’s income. These rules were not always well-communicated to borrowers, and as a result, PSLF was plagued by abysmal approval rates of around 2% or less.
Under the new expansion, which the administration is calling the “Limited PSLF Waiver” program, the restrictive rules regarding the types of federal loans and repayment plans that qualify are being relaxed for one year, until October 31, 2022. Already, the Department has indicated that $5 billion in new student loan forgiveness has been disbursed to 70,000 borrowers under this waiver program.
But many borrowers will have to take action on their student loans to qualify for relief. Borrowers with federal Perkins loans and federal student loans issued under the Family Federal Education Loan (FFEL) program may have to consolidate their loans through the federal Direct consolidation loan program. And borrowers who have not certified their public service employment via a specific PSLF application form would need to do so. There’s also a limited timeframe to act — the deadline is October 31, 2022.
Servicers May Mislead Borrowers On The PSLF Waiver
Last month, advocacy organizations for student loan borrowers issued a stark warning that student loan servicers — contracted companies that handle student loan operations on behalf of the U.S. Department of Education and other lenders — may mislead borrowers on the new PSLF expansion under the waiver.
“A review of industry practices… found that many of these companies are currently providing misleading and outdated information to borrowers that could derail efforts to access relief under the recently revamped Public Service Loan Forgiveness program,” said the Student Borrower Protection Center (SBPC) in a statement in December.
The concerns appear to have only deepened. Yesterday, Rohit Chopra, Director of the federal Consumer Financial Protection Bureau (CFPB) — an independent agency tasked with regulating the financial services industry — indicated that complaints are rolling in from borrowers who are being given misinformation on the Limited PSLF Waiver program, or getting blocked entirely from getting relief under the program.
“The @CFPB is hearing concerning stories from student loan borrowers about how their servicers are blocking their attempts to access the new PSLF Fix,” said Chopra in a tweet. “Servicers who fail to provide adequate information, support, or processing for PSLF will face consequences. The @CFPB will continue to monitor the industry for illegal practices to ensure that our nation’s public servants get the relief they earned.”
The CFPB has powerful regulatory tools at its disposal, including the ability to bring litigation against loan servicing companies.
Loan servicing companies have a long history of mismanaging the Public Service Loan Forgiveness program. Even before Biden’s recent expansion of the program, the CFPB issued a report last year that was critical of PSLF loan servicing practices; investigators “found a number of ways that student loan servicers gave incorrect information to borrowers, resulting in missteps that could cost consumers thousands of dollars,” including leading borrowers to “believe they could not access PSLF if they had older loans under the Federal Family Education Loan Program (FFELP), even though they could access PSLF by consolidating FFELP loans into Direct Loans.” Servicers also bungled the initial rollout of the Limited PSLF Waiver in the fall, leading to some erroneous denials.
Several loan servicing companies, including FedLoan Servicing (the contracted loan servicer specifically designated by the Department of Education to administer the PSLF program) have blamed Congress for creating the complicated PSLF eligibility criteria in the first place, and the Education Department for being slow to provide sufficient guidance, particularly under the new waiver.
Borrowers are complaining to the CFPB about erroneous PSLF determinations by loan servicers, misinformation on the program’s requirements, and extremely long hold times to speak with customer service representatives.
“Servicer failure to provide the information, support, and processing that consumers need to access the PSLF Limited Waiver is not acceptable,” said the CFPB in a statement on the agency’s blog. “The CFPB is committed to monitoring the industry for illegal practices and ensuring that public service employees, many who are on the front lines of the pandemic, can access the relief they deserve through PSLF.”
What Can Student Loan Borrowers Do?
Borrowers who are seeking student loan forgiveness through PSLF, including under the Limited PSLF Waiver program, have some options:
- First, take the time to learn about the program requirements and the rules under the Limited PSLF Waiver. The Department of Education has established a detailed website.
- Borrowers who believe they have received an erroneous determination on student loan forgiveness from their loan servicer can file a formal complaint with the U.S. Department of Education.
- The CFPB also encourages borrowers to file a complaint directly with that agency to report misrepresentations and other servicer misconduct.
Further Student Loan Reading
Student Loan Forgiveness Updates: New Changes Coming In 2022 For Public Service Borrowers
Biden May Be “Making A Decision Now” On Student Loan Cancellation, Says Key Senator
Biden Administration Touts $15 Billion In Student Loan Forgiveness For 675,000 Borrowers — Is More Coming?
Navient Student Loan Settlement: Who Qualifies For Relief, And What To Do