October 16, 2020
By Adam Minsky
A new investigatory report issued by the Student Borrower Protection Center and the American Federation of Teachers has uncovered millions of student loan servicing errors that have caused lasting financial harm to borrowers.
The report uncovered problems by Affiliated Computer Services (ACS), a company that used to be the primary loan servicer for the U.S. Department of Education’s federal student loan portfolio. Due to widespread problems with ACS, the federal government discontinued using ACS as its primary loan servicer in 2013. Other companies that many borrowers are familiar with — such as Navient, Great Lakes Higher Education, Nelnet NNI -1.7%, and FedLoan Servicing — took over the servicing operations for the Department’s federal student loan portfolio.
The investigation uncovered significant problems with ACS’s servicing operations that have continued to cause headaches for current borrowers through the present day, particularly for borrowers seeking relief under the Public Service Loan Forgiveness (PSLF) program. According to the report:
- ACS failed to enroll eligible student loan borrowers into qualifying repayment plans required to make progress towards PSLF.
- ACS failed to recertify qualifying program eligibility for borrowers, leaving many borrowers with the mistaken impression that they were still making progress towards loan forgiveness, when in reality they were not. Some borrowers were often unknowingly placed by ACS in new plans with unaffordable payments.
- ACS regularly mismanaged the administration of borrowers’ repayment plans, miscalculated borrower payments, and derailed progress toward PSLF. Several current servicers reported that borrowers were quoted the wrong payment amounts and terms, possibly disqualifying some of their payments toward loan forgiveness. One servicer, for instance, reported more than 80,000 loans transferred from ACS had incorrect loan payment amounts and terms.
- ACS mishandled records and misapplied payments. Many servicers noted that payment records for some borrowers were entirely missing or contained errors, impacting tens of thousands of borrowers. In some cases, ACS continued charging borrowers after their loans had been transferred, leading to duplicate charges.
- ACS applied forbearances far beyond the amount permitted under the law. As a result, borrowers were hit with unexpected, avoidable interest charges that could add thousands of dollars to their loans and placing them into repayment programs ineligible for PSLF. Servicer reports show hundreds of thousands of borrowers remained in unauthorized or improper forbearance, often for five years or more. The maximum allowable time in forbearance for federal student loans is generally just three years.
As a result of the alleged errors by ACS, many federal student loan borrowers are currently struggling to get payments made between 2007 and 2013 to count towards PSLF. Some of their payments may not count, given the strict eligibility criteria of the PSLF program. Other borrowers are struggling to repay substantially higher loan balances than what they started with due to the interest accrual associated with extensive forbearances provided by ACS.
“Our investigation reveals that from the outset of the PSLF program, nearly every borrower pursuing loan forgiveness was set up to fail. The blatant mismanagement of one abusive student loan company has plagued nurses, teachers, and servicemembers for a decade and continues to derail those seeking promised loan forgiveness,” said SBPC Executive Director Seth Frotman in a statement.“Now Congress and the Department of Education must take action to ensure these borrowers get justice.”
“The PSLF program has failed over and over to realize its bipartisan promise, and now we’re starting to grasp the reasons why: its foundations were built on quicksand,” said AFT President Randi Weingarten. “Rather than alleviating the debt burden of students committed to public service, ACS ran roughshod over them, making careless errors and pushing them into forbearance and onerous repayment plans.”
The report calls for an independent audit of borrower accounts, and suggests that Congress should take action to address the widespread problems.
Following the issuance of a similar report critical of federal student loan servicing in August, a U.S. Department of Education spokesperson declined to address specific allegations, but stated that the Department makes decisions regarding PSLF eligibility based on appropriate regulatory criteria, and makes “every effort” to corroborate the assertions of the borrower in PSLF forms regarding qualifying payments. The spokesperson pointed to efforts the Department has made to improve the PSLF program, including the creation of the PSLF Help Tool and coordinated outreach efforts to borrowers regarding eligibility.
A bill sponsored by Senators Kirsten Gillibrand (D-NY) and Tim Kaine (D-VA) could address many problems with the Public Service Loan Forgiveness program by allowing payments made under any repayment plan to qualify. The bill would also streamline and automate the PSLF application process by creating a fully electronic application, and would require the Department of Education to provide more detailed information up-front to borrowers about the program. Importantly, the bill would set up a dispute resolution system that presently does not exist. Former Vice President Joe Biden has also promised to streamline and improve student loan servicing and the administering of the PSLF program.