For Immediate Release - August 23, 2017

AG Healey Sues to Protect Public Service Loan Forgiveness

BOSTON – Defending the rights of students pursuing public service careers, Massachusetts Attorney General Maura Healey today sued one of the largest federal student loan servicers in the country for undermining Public Service Loan Forgiveness (PSLF), a federal program that forgives student loans after 10 years of public service, enabling Americans to take lower-paying jobs in public service.

The complaint, filed today in Suffolk Superior Court, alleges that the Pennsylvania Higher Education Assistance Agency (PHEAA)—doing business as FedLoan Servicing— violated state and federal laws by causing teachers and other public servants to lose benefits and financial assistance under PSLF and the Teacher Education Assistance for College and Higher Education (TEACH) Grant program.

“This company’s actions have jeopardized the financial futures of teachers and public servants across the country,” said AG Healey. “These federal programs allow Americans from all backgrounds to dedicate their careers to serving others. My office will protect PSLF and hold PHEAA accountable for forcing these students further into debt.”

Congress created the PSLF program and the TEACH Grant program to address the disconnect between the rising cost of higher education and society’s need for skilled workers in public sector jobs. Congress recognized that when students graduate with significant amounts of debt, pursing public service careers often is not an option for them.

The PSLF program allows public servants, such as police officers, military personnel, nurses, social workers, and government employees, to commit to public service and manage their student loan debt and receive loan forgiveness after 10 years of service. In May, the Trump administration proposed eliminating PSLF for borrowers who take out loans after July 1, 2018.

Under the TEACH Grant program, students who wish to pursue teaching careers in low-income schools for at least four years in fields such as math, science or foreign language are given financial grants. Students receive up to $4,000 per year to help pay for the education required for their teaching career. 

The U.S. Department of Education exclusively hired PHEAA to manage these federal programs. Upwards of a million student borrowers have committed themselves to public service jobs and are fulfilling the requirements necessary to qualify for loan forgiveness or grants. Rather than fulfill its responsibilities to these borrowers, PHEAA has instead prevented student borrowers from making qualifying monthly payments that count towards loan forgiveness, shifting the consequences of its loan servicing failures onto the student borrowers themselves.

The complaint also alleges that PHEAA has overcharged student borrowers and prevented them from staying on track with Income Driven Repayment plans that make their monthly payments more affordable. According to the complaint, PHEAA is aware of these problems but has failed to rectify the harms that PHEAA’s servicing failures have caused to student borrowers.

PHEAA is one of the largest student loan servicers in the country, managing more than a quarter of the nation’s $1.4 trillion student loan debt on behalf of various lenders for millions of borrowers across the United States. PHEAA manages student loan accounts for hundreds of thousands of Massachusetts borrowers with a total outstanding principal balance exceeding $5 billion.

The complaint against PHEAA seeks restitution, injunctive relief, civil penalties and reimbursement of the Commonwealth’s costs and expenses for PHEAA’s unfair and deceptive student loan servicing practices.

This case is being handled by Shennan Kavanagh, Deputy Chief, and Assistant Attorneys General Yael Shavit and Jared Rinehimer of AG Healey’s Consumer Protection Division, with assistance from Paralegal Gabrielle Crossnoe. Assistant Attorney General Brook Kellerman of the Insurance and Financial Services Division also assisted with the investigation.

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