July 8, 2021 | WASHINGTON, DC — Today, the student loan servicer Pennsylvania Higher Education Assistance Agency (PHEAA), also known as FedLoan Servicing, announced that it would no longer continue to serve as the top loan servicer for the U.S. Department of Education. In this capacity, PHEAA had handled more than $350 billion in student loans owed by more than 8.5 million people and was responsible for managing the scandal-plagued Public Service Loan Forgiveness (PSLF) program.
In response to this announcement, Student Borrower Protection Center Executive Director Seth Frotman released the following statement:
“This morning, student loan borrowers across the country, including millions of teachers and other public service workers, received the welcome news that the Department of Education will no longer rely on a company accused of widespread mismanagement and abuse to handle millions of borrowers’ student loans.
However, this is not the end of the road—parting ways with a bad company is not the same as delivering justice for those who were harmed by its abuses.
Now more than ever, student loan borrowers need Joe Biden to deliver promised debt relief, especially for those cheated by PHEAA for more than a decade. Student loan borrowers, especially public service workers, also need the White House to extend the pause on student loan payments while Secretary Cardona and the student loan industry come up with a plan to fix the broken student loan system and deal with the wreckage left in PHEAA’s wake.”
PHEAA stands accused of a wide range of abuses, cheating borrowers across the country out of affordable loan payments and loan forgiveness and, most recently, lying to Congress about its track record as the nation’s largest student loan servicer.
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Background
In ending its student loan servicing contract, the Pennsylvania Higher Education Assistance Agency (PHEAA) turns the page on a decade-long record of scandal, mismanagement, and abuse at the center of the $1.7 trillion student loan market. Over this period, PHEAA grew into one of the largest loan servicers in the country, handling more than one out of every eight dollars of non-mortgage consumer debt nationwide.
- As part of its $500 billion loan servicing and collections portfolio, PHEAA handles more than $350 billion worth of federal student loans owed by 8.5 million borrowers under its contract with the U.S. Department of Education. This contract, which was extended in 2020, includes the sole servicing rights to handle the scandal-plagued Public Service Loan Forgiveness (PSLF) program, which has a 98 percent denial rate.
- PHEAA has been the target of consumer protection lawsuits by the Massachusetts and New York Attorneys General for its mishandling of PSLF. An investigation by the SBPC and the American Federation for Teachers reveals these abuses to be widespread, spanning nearly a decade.
- In recent years, PHEAA has also suffered from severe financial problems, closing call centers and warning Pennsylvania state lawmakers that it was running out of money.
- Large-scale loan transfers, like the transfer of 8.5 million borrowers who will no longer be served by PHEAA, have caused widespread problems for borrowers in the past. In October, the SBPC and the American Federation of Teachers issued a comprehensive report examining the consequences for borrowers stemming from the last time the Department of Education tried to move millions of student loan borrowers’ accounts between its loan servicing contractors. This resulted in more than 5 million documented servicing errors and more than a decade of problems for borrowers across the country.