Amid increased public pressure, the Education Department issued a notice of plans to reconsider the cases of TEACH grant recipients who believe their awards were incorrectly converted to loans. The loans of those who are successful will revert to grants, and payments on those loans will be refunded, according to the department.
The TEACH grant program provides money to students willing to work in high-needs schools or teach high-needs subjects for at least four of their first eight years out of college. Teachers must submit paperwork verifying eligible employment, otherwise their grant will be converted to a federal loan that must be repaid with interest.
Participants have complained of having their grants converted as a result of paperwork mishaps, missed certification deadlines or receiving incorrect information from FedLoan. To rectify some of those problems, the Education Department will adopt a uniform deadline for annual certification. It is also considering regulatory changes to streamline the process.
“The changes to the certification process are an important step, but it’s really important they aren’t perceived as a full fix to the program’s problems,” said Julie Murray, an attorney at Public Citizen, a consumer advocacy group.
Murray, who led a lawsuit against the Education Department for release of records on the TEACH grant program, is skeptical about whether the agency and FedLoan can effectively manage the program. She said it is critical that FedLoan have the capacity to process all certification forms at once, and there have been previous backlogs in the certification process at the company.
“Broad pronouncements by the department can’t provide the competence that’s so far been missing,” Murray said. “And even if the department implemented its reconsideration process perfectly, there will be a new wave of conversions that the department’s outdated regulations still require.”
Troubles in the TEACH grant program came to light in a 2015 report from the Government Accountability Office, which found that 2,252 recipients had their grants mistakenly converted to loans from August 2013 through September 2014. During that time, FedLoan replaced ACS as the servicer for the program.
Researchers at the GAO said 56 percent of the erroneous conversions occurred because the servicer failed to give recipients 30 days from the final notification to certify their employment. Education officials assigned much of the blame to ACS, while FedLoan said it was manually reviewing all accounts flagged for conversion to mitigate the problem. A majority of the people had their loans turned back to grants within six months and were refunded a total of $196,000, according to the report.
But records obtained by Public Citizen show that erroneous conversions are far more widespread than the GAO found. FedLoan identified more than 15,000 grants that it suspected were converted in error by ACS, according to a document the Education Department provided the advocacy group.
Participants in the program say the problems have persisted under FedLoan. A group of teachers filed a lawsuit against the company in 2017, accusing FedLoan of trying to turn a profit because servicing loans for the government is more lucrative than servicing grants. According to a 2014 contract, FedLoan is paid $1.05 for each recipient of a TEACH grant and $2.85 for each borrower repaying a student loan. Handling borrowers in deferment or forbearance and those who are delinquent is less lucrative for the company than servicing student loans — but, in most cases, it’s still more than the government pays for the grant program.