The Washington PostDemocracy Dies in Darkness

Student loan servicer misled borrowers about relief program, CFPB says

Rohit Chopra, then head of the Federal Trade Commission and now director of the Consumer Financial Protection Bureau, attends a Senate hearing in April 2021. (Stefani Reynolds/Bloomberg News)
4 min

Updated with a comment from EdFinancial.

EdFinancial Services, a company that manages federal student loans for the Education Department, allegedly misled borrowers about their eligibility for a debt-relief program for public servants, the Consumer Financial Protection Bureau said Wednesday.

The bureau hit the Knoxville, Tenn.-based company with $1 million in penalties, accusing it of making deceptive statements about the Public Service Loan Forgiveness (PSLF) program, which cancels outstanding federal student debt held by public servants such as teachers or members of the military after 10 years of on-time payments. EdFinancial vehemently denies the charges.

Consumers take issue with Aidvantage’s management of federal student loans

The allegations are rooted in the student loan servicer’s interactions with borrowers holding debt from an old bank-based federal lending program known as Federal Family Education Loan (FFEL). People with those loans must consolidate them to take advantage of the forgiveness program, but the CFPB said EdFinancial did not inform borrowers of that step. Instead, many were led to believe there was no path to qualify, according to the consent order on the matter.

Other borrowers with FFEL loans were allegedly told their payments counted toward the forgiveness program, despite never consolidating. The CFPB also accused EdFinancial of misrepresenting to borrowers that certain jobs were not eligible for PSLF, when in fact they were. Investigators say company representatives also failed to mention the program when people asked about forgiveness options. The bureau found evidence of misleading information from at least January 2017 through at least February.

EdFinancial said the company agreed to the consent order to devote all of its energy to helping customers, not fighting litigation.

“Facing protracted and costly litigation that would have distracted us from our day-to-day responsibilities to our clients, borrowers and staff, we have settled the case,” EdFinancial said in a statement. “The FFELP loans we service represent a tiny fraction — one-half percent — of the total FFELP loans in the country.”

The watchdog agency has in the past accused student loan servicers of cutting corners to save time and money at the expense of borrowers. The federal agency also has questioned whether servicers are reluctant to share information about the public service program because it could result in the loss of an account if a borrower is transferred to a competitor managing loans in the program.

“EdFinancial’s failure to tell the full truth to borrowers, so it could pad its bottom line, highlights a systemic problem with loan servicing,” CFPB Director Rohit Chopra said Wednesday. “When student loan companies lie about cancellation and repayment programs for borrowers, they are breaking the law.”

In addition to the fine EdFinancial must pay the CFPB, the company has to inform its FFEL borrowers of a temporary expansion of the Public Service Loan Forgiveness program that could bring them closer to debt cancellation.

Biden administration temporarily expands student loan forgiveness program for public servants

In October, the Education Department said it would temporarily allow all payments that eligible public servants made on federal student loans, including FFEL debt, to count toward the forgiveness program. The decision allows public servants to sidestep the program’s rigid rules to receive debt relief, but only until Oct. 31.

Normally, participants must have loans made directly by the federal government and be enrolled in specific repayment plans, primarily those that cap monthly loan payments to a percentage of their income. They also must work for the government or certain nonprofit organizations.

Missteps can add years to the process, and borrowers have complained that poor advice from loan servicers led them to believe they were making qualifying payments when they were not.

Given that history, the CFPB has kept an eye on servicing practices. Examiners at the bureau last year reported instances of student loan servicers providing inaccurate information about the public service program. And in February, the CFPB warned servicers to be vigilant about the information they provide about the program and the waiver.

For its part, the Education Department issued a letter Wednesday to servicers managing old bank-based loans warning them to address any faulty information being provided about the forgiveness program to avoid the consequences faced by EdFinancial. The department said it suspects the alleged misstatements are widespread.

“Public employees provide important services in communities across America,” Richard Cordray, who heads the Education Department’s office of Federal Student Aid, said Wednesday. “We are making it clear to all companies that service federal student loans that they are expected to provide these borrowers with accurate information about how to get the loan forgiveness they deserve.”