June 29, 2021 | WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau, as part of its ongoing examination of student loan servicers, identified illegal practices that blocked access to Public Service Loan Forgiveness for public service workers with older federal loans made by banks and other private lenders. In response to this new evidence of widespread mismanagement and abuse in the scandal-plagued program, SBPC Executive Director Seth Frotman issued the following statement:
“The CFPB’s findings confirm that the student loan industry has been engaged in a widespread, illegal scheme to cheat public servants out of the loan forgiveness earned through their service to our country and in our communities. The Department allowed an entire generation of dedicated teachers, nurses, and other public service workers to be ripped off by student loan companies. Secretary Cardona must use his authority to right this tremendous wrong and deliver debt relief to these borrowers. As the Biden Administration fulfils its promise to repair the Public Service Loan Forgiveness program, it must start by delivering justice to all public servants with older federal loans made by private lenders.”
These findings were included in a new edition of the Bureau’s regular Supervisory Highlights report, identifying a wide range of illegal practices by providers of consumer financial products and services including student loan servicers.
A copy of Supervisory Highlights: Summer 2021 is available here: https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-issue-24-summer-2021/
Individual borrowers, advocates, academics, regulators, and law enforcement officials have long warned about the potential risks posed to America’s public service workforce by a student loan industry scheme to deny these workers access to Public Service Loan Forgiveness.
Over the past decade, a wave of enforcement actions, lawsuits, and investigations have uncovered evidence that the companies that own or service older federal student loans, known as Family Federal Education Loan Program loans or FFELP loans, systematically misled or obstructed borrowers who sought information about how to qualify for PSLF. The student loan industry has a strong economic incentive to abuse public service workers in this way– when a public service worker who owes a FFELP loan takes action to get on track for PSLF, the current creditor loses all future interest revenue on the loan.
Examples of past abuses include:
- New York Department of Financial Services and New York Attorney General Action Against Affiliated Computer Services (ACS), formerly a division of Xerox. In 2019, NY consumer protection officials brought an enforcement action against ACS for tricking public service workers out of their right to PSLF. As the consent order in this matter explained “ACS managers directed representatives not to provide information on PSLF eligibility criteria to borrowers who contacted ACS seeking information about the program.”
- Navient settled claims brought by members of American Federation of Teachers that it systematically steered FFEL borrowers away from PSLF. In 2020, Navient settled Hyland v. Navient, a class action lawsuit brought by members of the American Federation of Teachers (AFT), including teachers that allege Navient lied to them about their eligibility for PSLF. Navient is the largest owner of FFELP loans. As part of this settlement, Navient agreed to reform its approach to communicating with public service workers about PSLF.
Additional information on the widespread issues raised by the Bureau’s findings:
SBPC and AFT released previously unpublished government records showing that the U.S. Department of Education failed to act in the face of mounting evidence of industry abuses. In 2020, as part of their ongoing investigation of mismanagement and abuse in the administration of PSLF, the SBPC and AFT published findings revealing that ED failed for more than a decade to provide any regulation, guidance, or direction to student loan companies that advise public service workers about their right to PSLF. This failure allowed tens of thousands of borrowers to be knocked off track due to technicalities the Department could have easily avoided.
A broad coalition of organizations representing workers, servicemembers, veterans, civil rights groups, and faith communities have called on the Department of Education to fulfil the promise of PSLF for borrowers who have completed a decade of service. The SBPC has organized a coalition of over 95 student, consumer, public interest, civil rights, higher education, public health, workforce, professional, military, and faith organizations representing millions of public service workers and student loan borrowers to call for Secretary Cardona to review the PSLF program and finally deliver borrowers promised relief. Similar demands have been sent to ED by labor unions representing more than ten million public service workers, 56 members of Congress, and 16 Military and Veteran Service Organizations.
The SBPC has documented how the Secretary of Education has the authority to ensure that public service borrowers secure the relief promised under the law. In conjunction with the Student Loan Law Initiative at the University of California, Irvine School of Law, SBPC published a paper laying out the extensive authorities already available to the Secretary of Education to deliver debt relief to public service workers, including those with older FFEL loans.
Secretary Cardona has called it “a priority” for the Education Department to “revisit” past failures in its management of PSLF. In a conversation with National Education Association President Becky Pringle, Education Department Secretary Miguel Cardona expanded on the Biden Administration’s commitment to deliver promised debt relief to public service workers, explaining that the Education Department has “the authority to revisit that and make sure we’re honoring those who choose to engage in public service by providing loan forgiveness in a way that is a lot better than two percent approval.” Secretary Cardona further committed that “we owe it to our students to do better, and that’s a priority for me.”