- Office of Attorney General Maura Healey
Media Contact for AG Healey Secures First-of-its-Kind Relief in Settlement With Major Student Loan Servicer
BOSTON — Following a lawsuit against one of the largest federal student loan servicers in the country for unfair and deceptive practices, including undermining the federal Public Service Loan Forgiveness (PSLF) program, Attorney General Maura Healey announced a settlement that secures individualized account reviews and associated relief for thousands of Massachusetts student loan borrowers, including public servants and teachers.
The settlement reached with the Pennsylvania Higher Education Assistance Agency (PHEAA), d/b/a FedLoan Servicing, resolves allegations that PHEAA made errors and provided misinformation to borrowers about PSLF eligibility requirements, causing borrowers to lose months of qualifying payments towards loan forgiveness. The settlement also resolves allegations that PHEAA delayed in processing Income-Driven Repayment (IDR) applications, causing borrowers to get off track with their payments, and erroneously caused Teacher Education Assistance for College and Higher Education (TEACH) Grant recipients to have their grants wrongly converted to loans.
“Public servants burdened with student loan debt are entitled to the relief that they were promised under these federal programs,” said AG Healey. “As a result of our hard-fought litigation against PHEAA, this agreement secures first-of-its-kind relief for teachers and other public servants that we rely on to keep our communities safe, healthy, and educated – especially during this public health crisis. Our office will continue to monitor PHEAA’s operations to ensure compliance.”
AG Healey’s settlement with PHEAA requires the most far-reaching audit in any student loan servicer settlement, providing an opportunity for more than 200,000 Massachusetts borrowers whose federal loans are serviced by PHEAA to submit a claim for a detailed account review.
If the account review identifies a servicing error or misrepresentation, PHEAA must make account corrections which will restore borrowers to their rightful statuses under the federal programs. If account corrections are not possible, PHEAA is instead required to pay monetary relief to borrowers. These monetary payments are based on an innovative damages model that calculates a dollar value for each month that the borrower lost progressing towards loan forgiveness, regardless of whether the borrower ultimately completes the PSLF program. The model calculates the percent of a borrower’s outstanding loan balance that would have been forgiven if loan forgiveness happened in monthly increments rather than in full after 10 years of qualifying payments.
The settlement also requires PHEAA to repay teachers whose financial grants were erroneously converted to loans under the TEACH Grant program who otherwise did not receive relief from the U.S. Department of Education. Borrowers who experienced an IDR application processing delay and missed opportunities to make a qualifying payment towards loan forgiveness will receive corrections to their IDR qualifying payment count.
Borrowers are eligible to submit a claim for an account review if they resided in Massachusetts at any time after January 1, 2013 and presently have a federal student loan that is owned by the U.S. Department of Education and serviced by PHEAA. PHEAA is expected to send settlement claim forms to eligible Massachusetts borrowers on a rolling basis between April and July 2021. Borrowers who have elected to receive electronic communications from PHEAA will receive the claims notice electronically. All other borrowers will receive the claim forms by mail.
“We applaud Attorney General Maura Healey for achieving this bold settlement with the Pennsylvania Higher Education Assistance Agency (PHEAA) and forcing PHEAA to take steps to correct borrowers’ accounts and put money back in the pockets of student loan borrowers,” said National Consumer Law Center attorney Persis Yu and director of NCLC’s Student Loan Borrower Assistance Project. “Servicing abuses, like those alleged by General Healey, have plagued the student loan system and have trapped borrowers in unaffordable repayment for years by denying them access to vital programs like income-driven repayment and public service loan forgiveness. As a result of these abuses, borrowers are routinely denied the cancellation they have been promised and desperately need and end up paying more for longer on their loans. This settlement is a huge step towards ensuring meaningful accountability for student loan servicers.”
“Thanks to years of work by Attorney General Healey, teachers, nurses, and public service workers across Massachusetts have secured a measure of justice for PHEAA’s abuses,” said Student Borrower Protection Center Executive Director Seth Frotman. “This action should be a wakeup call for the Department of Education – every teacher and every public service worker across the country deserves to be made whole after a decade of industry abuses and government mismanagement. Today’s action is a critical step to rebuild our broken student loan system.”
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 qualifying payments. 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, pursuing public service careers often is not an option for them.
PHEAA has exclusive contracts with the U.S. Department of Education to administer the PSLF and TEACH Grant programs. As a result, borrowers wishing to participate in these programs have no choice but to have their loans serviced by PHEAA and have often struggled to get accurate information about their account status or to get servicing errors corrected. The PSLF program is complex and has many detailed requirements. A list of these requirements is available on the U.S. Department of Education’s PSLF webpage.
Today’s settlement is the result of hard-fought litigation against PHEAA and robust advocacy by AG Healey’s Office to the U.S. Department of Education to identify the types of loan account corrections PHEAA can perform for cohorts of borrowers affected by the same servicer error.
AG Healey has been a national leader in holding PHEAA accountable. Congress has asked the AG’s Office to provide testimony on three occasions about the PHEAA litigation and problems in the student loan servicing industry generally. In 2017, AG Healey was the first to sue PHEAA for violating state and federal consumer protection laws by causing public servants and teachers to lose benefits and financial assistance under PSLF and TEACH grant programs.
For details about today’s settlement, including information about eligibility and the claims process, please visit AG Healey’s website at www.mass.gov/ago/PHEAA. Borrowers who are ineligible to submit a claim under the AG’s settlement should to contact the Federal Student Aid Ombudsman, Consumer Financial Protection Bureau, and/or their home state attorney general’s office if they believe they have been subject to account errors or misrepresentations by PHEAA.
This case is being handled by Deputy Chief Shennan Kavanagh and Assistant Attorneys General Yael Shavit and Kimberly McDonald, all of AG Healey’s Consumer Protection Division, with assistance of Assistant Attorney General Jared Rinehimer, the Student Loan Assistance Unit of the Insurance and Financial Services Division, and AG Healey’s Information Services Center.