The Consumer Financial Protection Bureau (CFPB), a federal watchdog agency that oversees the financial services industry, has issued a $1 million penalty to a major student loan servicer for allegedly misleading borrowers about student loan forgiveness. Here’s an overview.
Student Loan Servicer Fined For Allegedly Misrepresenting Student Loan Forgiveness Program
The CFPB issued the fine against EdFinancial Services, one of the Department of Education’s main contracted loan servicing companies. EdFinancial is taking on an increasingly prominent role within the federal student loan servicing system as it takes over hundreds of thousands of borrower accounts from FedLoan Servicing, another contracted loan servicer that is in the process of withdrawing from the federal student aid system.
The CFPB accused EdFinancial of misleading borrowers about Public Service Loan Forgiveness (PSLF), a federal loan forgiveness program geared towards borrowers who have devoted their careers to nonprofit or public organizations. The Biden administration recently expanded PSLF eligibility through the “Limited PSLF Waiver” program, which will temporarily allow past periods of repayment that were rejected (for example, due to the payments being made on the “wrong” type of federal loan or the “wrong” ” type of repayment plan), to potentially qualify towards loan forgiveness.
According to the CFPB, EdFinancial misled borrowers about their eligibility for PSLF — including under the Limited PSLF Waiver program. “When borrowers with FFELP loans asked about PSLF, Edfinancial, in many instances, told them they were ineligible, and the company did not tell them they could become eligible by consolidating their loans into Direct Loans and meeting other qualifying requirements,” said the CFPB in a statement on Wednesday summarizing its decision to sanction the company.
“Edfinancial’s failure to tell the full truth to borrowers, so it could pad its bottom line highlights a systemic problem with loan servicing,” said CFPB Director Rohit Chopra in a statement, “When student loan companies lie about cancellation and repayment programs for borrowers, they are breaking the law.”
EdFinancial did not post a public response to the CFPB’s action on its website or on social media. However, the main borrower portal on its website does include an “Important Public Service Loan Forgiveness Update” tab, which states, “The US Department of Education (ED) announced a temporary change to the Public Service Loan Forgiveness (PSLF) program rules under the limited PSLF waiver! Now, for a limited time, borrowers may get credit for past periods of repayment that normally wouldn’t qualify for PSLF.” The bulletin directs borrowers to access the Department of Education’s website on the program. It is unclear when EdFinancial’s website was updated to include this message.
CFPB’s Crackdown Follows Prior Warnings About Student Loan Servicers Misleading Borrowers
The CFPB had warned student loan servicers last month not to mislead borrowers about loan forgiveness, or they would risk sanctions.
“Through its supervision of student loan servicers, the CFPB has found that servicers made deceptive statements to borrowers about their ability to become eligible for PSLF,” said the agency in a bulletin in February. “When servicers fail to provide accurate and complete information, they mislead borrowers about their ability to benefit under PSLF, which can lead to tens of thousands of dollars in loan payments that should have been canceled.”
“Illegal conduct by a student loan servicer can be ruinous for borrowers who miss out on the opportunity for debt cancellation,” said CFPB Director Rohit Chopra in a statement accompanying that bulletin. “We will be working closely with the US Department of Education to ensure that loan cancellation promises for public service are honored.”
The CFPB’s crackdown against EdFinancial follows an unrelated settlement agreement between several state attorneys general and Navient — another major student loan servicer — to address of unfair and deceptive practices and predatory lending. That settlement agreement includes some student loan debt cancellation and restitution for thousands of borrowers. Navient did not admit to any wrongdoing as part of that settlement agreement.
Learn About Recent Changes To Public Service Loan Forgiveness
Borrowers interested the PSLF program, including the new Limited PSLF Waiver, should be proactive in learning about the program requirements to reduce the chances of being misled by their loan servicers. And borrowers who believe that they have been misled or erroneously denied relief may have some options:
- The Department of Education has established a detailed website on the program requirements for the Limited PSLF Waiver program.
- Borrowers can also use the Department’s PSLF Help Tool to verify whether their employment may qualify for the program.
- Borrowers who believe they have been misled by their loan servicer on PSLF or any other student loan program can file a complaint with the CFPB, which may trigger an investigation.
- Borrowers who have received an erroneous PSLF determination (such as a denial of forgiveness or an incorrect payment count) can file a formal complaint and request for review with the Department of Education’s Feedback Division or Ombudsman Group, The Department has also indicated it will be rolling out a PSLF reconsideration and appeal process next month.
Further Student Loan Reading
Navient Student Loan Settlement: Who Qualifies For Relief, And What To Do
Extend Student Loan Pause To 2023? Biden May Do It.
Biden May Extend Student Loan Pause And Is Considering Loan Forgiveness, Says White House Official
Thousands Of Jobs Qualify For Expanded Student Loan Forgiveness Program
Credit: www.forbes.com /