Edfinancial Routinely Misled Public Service Workers About Right to Loan Forgiveness, Padding Profits at Teachers’ and Nurses’ Expense; Company Agrees to Pay Penalty to Resolve Charges of Deception
March 30, 2022 | WASHINGTON, DC — Today, the Consumer Financial Protection Bureau (CFPB) brought an enforcement action against Edfinancial, a large student loan company that manages the accounts for millions of people with student debt. The CFPB found that between 2017 and 2021 the company routinely and systematically deceived student loan borrowers working in public service about their right to pursue debt cancellation through the Public Service Loan Forgiveness (PSLF) program.
In response to the CFPB’s announcement of this action, SBPC executive director Mike Pierce released the following statement:
For more than a decade, teachers, nurses, and other public service workers have shared heartbreaking stories of financial calamity driven by student loan industry deception. Justice demands both debt relief for borrowers and accountability for companies and executives that withhold vital information in order to boost their own bottom lines.
In October, the Biden Administration opened the door to debt relief for borrowers harmed by schemes like the one deployed by Edfinancial. Today, the CFPB held Edfinancial accountable for its abuses and sent a powerful signal to the entire student loan market: if you lie to your customers, you will face justice.
Enacted by Congress in 2007, PSLF promises to cancel student debt for any public service worker who owes a federal student loan and works full-time in public service for a decade or more. Borrowers with older federal loans made by private lenders and guaranteed by the federal government need to take an intermediate step called “consolidation” to get on track for PSLF. Borrowers who did not take this step at the start of their careers forfeited credit toward PSLF.
The record shows that industry has routinely blocked and misled these older borrowers from consolidating their loans to pursue PSLF at every turn, and that the U.S. Department of Education ignored these abuses for years.
The results are stark: last year, the Department of Education indicated that “close to half” of borrowers rejected from PSLF for a lack of qualifying payments have been in repayment for ten years or more but lost progress due to the timing of the consolidation of FFELP loans into Direct loans. The scheme uncovered by the CFPB offers fresh evidence that the collapse of PSLF was a direct result of lawlessness across the student loan industry.
A press release from the Consumer Financial Protection Bureau on today’s action against Edfinancial is available here.
A warning letter sent contemporaneously by Federal Student Aid Chief Richard Cordray to all holders of FFELP loans is available here.
A statement issued by CFPB Director Rohit Chopra issuing a similar warning to the student loan industry is available here.
Passed into law with bipartisan support in 2007, PSLF made student loan borrowers a simple but powerful promise: after ten years of service to our nation or in their communities, public service workers would be given the opportunity to have their loans forgiven. However, extensive industry malfeasance, policy failures, and negligence by the Department of Education resulted in a 98 percent denial rate as of September 2021.
In October 2021, Education Secretary Miguel Cardona temporarily waived requirements under the PSLF program, dramatically expanding access to debt relief for public service workers. As a direct result of the Biden Administration’s actions, more than 100,000 public service workers have had more than $6 billion in debt canceled–canceling seven times more debt in the past six months than had been canceled in the first 14 years since PSLF was created.
The companies that own older federal loans guaranteed by the U.S. government—known as Federal Family Education Loan Program loans or FFELP loans—were a key driver of this breakdown. In order to access PSLF, FFELP borrowers must consolidate their loans into a different type of loan known as Direct loans. A wave of enforcement actions, lawsuits, and investigations over the past decade have revealed that the companies that own or service FFELP loans have systematically misled or obstructed borrowers who sought information about how to qualify for PSLF to pad their own bottom line.
In December, SBPC and the largest international labor unions sent a letter to the largest holders of FFELP loans warning these companies that any action to deceive borrowers about their right to debt relief under PSLF would not be tolerated. In February 2022, the CFPB echoed this warning and stepped up scrutiny of these firms and their practices.
Research by the SBPC shows that the companies that own FFELP loans face a financial incentive to block borrowers from accessing loan forgiveness. The results of these abuses are stark, with ED recently reporting that “a significant share of borrowers rejected from PSLF have been in repayment for ten years or more but lost progress due to the timing of the consolidation of FFELP loans into Direct loans.
Examples of widespread abuses against public service workers by companies that own FFELP loans include the following:
- Active, intentional steering of FFELP borrowers away from PSLF by the student loan servicer ACS. In 2019, the New York Department of Financial Services and New York Attorney General took action against the student loan servicer Affiliated Computer Services (ACS), formerly a division of Xerox, for tricking public service workers out of their right to PSLF. As the consent order in this case explained, “ACS managers directed representatives not to provide information on PSLF eligibility criteria to borrowers who contacted ACS seeking information about the program.” This conduct robbed borrowers of months or years of progress toward PSLF.
- Extensive misdirection and lies by the student loan servicer Navient. In 2020, the massive student loan servicer Navient settled Hyland v. Navient, a class action lawsuit brought by members of the American Federation of Teachers (AFT). These teachers alleged that Navient lied to them about their eligibility for PSLF, costing them years of lost payments toward promised loan forgiveness. Navient is the largest owner of FFELP loans, and it had previously been caught systematically pushing borrowers off the phone and often into inappropriate repayment options—regardless of what would be right for the borrower—so that the company might pad its profits. As part of this settlement, Navient agreed to reform its approach to communicating with public service workers about PSLF.
- Widespread, ongoing misrepresentations. As recently as June 2021, the Consumer Financial Protection Bureau reported that it had caught FFELP loan holders in the past year still telling borrowers that their loans do not qualify for PSLF without going on to explain that consolidating into a Direct loan will remedy that situation. FFELP loan holders have an incentive not to share this information because only one servicer, PHEAA, is tasked with servicing all loans owed by borrowers pursuing PSLF, meaning that the FFELP servicers will lose business if it follows the law and transparently informs borrowers of their rights.
About Student Borrower Protection Center
The Student Borrower Protection Center (SBPC) is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. The SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students.