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Two teachers are suing Pennsylvania Higher Education Assistance, a company that manages student loans and grants on behalf of the government, for converting their federal grants into loans to allegedly raise revenue.

The case explores what consumer advocates say is the haphazard way the government handles federal programs that encourage college graduates to enter fields serving the public good with the promise of loan forgiveness or financial aid. People have complained of misplaced documents, trouble verifying their participation and inexplicable changes to eligibility requirements, problems they say undermine the programs.

At the heart of the lawsuit is the management of the Teacher Education Assistance for College and Higher Education Grant, a federal program that provides money to students willing to work in high-needs schools or teach high-needs subjects for four years. Teachers must submit paperwork verifying eligible employment, otherwise their grant will be converted to a federal loan that must be repaid with interest. FedLoan Servicing, an arm of Pennsylvania Higher Education Assistance, oversees the process for the Education Department but is accused of converting grants in error and refusing to right the wrong.

David West, one of the plaintiffs in the case, said everything went smoothly the first year he verified being an art teacher at White Knoll High School in Lexington, S.C. But West, 46, ran into problems after missing a signature on the certification form. Although he says he took immediate action to correct the mistake within the 30 days allotted, FedLoans turned his $4,000 grant into a loan. West appealed the decision and filed complaints with the Consumer Financial Protection Bureau and the Education Department to no avail.

“I was beyond frustrated, enraged,” said West, who is now in his fifth year of teaching at White Knoll. He is refusing to make payments on the loan, and as a result is being threatened with wage garnishment. “If I had not done the teaching, if I had not followed through, then that’s one thing. But I did exactly what was asked of me, and here I am.”

For Ashley Ford, a special-education teacher at Stanton Middle School in Kent, Ohio, her fight with FedLoan began when she was on maternity leave. Much like West, she neglected to sign the paperwork submitted to the servicer, according to the complaint. Even though Ford says a representative at the company assured her that everything would be fine once she completed a new form, her $7,000 grant was still turned into a loan. Ford went back and forth with FedLoan for more than a year disputing the conversion, yet remains on the hook for the debt and the $1,997 in accrued interest.

PHEAA referred all questions to the Education Department, which did not immediately respond to requests for comment.

Problems in the TEACH grant program first 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, PHEAA 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 PHEAA said it was manually reviewing all accounts flagged for conversion to mitigate the problem. A majority of the people had their loans reverted back to grants within six months and were refunded a total of $196,000, according to the report.

To help teachers still disputing the conversion, Troy Doucet, the attorney representing the two educators, is seeking class-action status. Doucet claims PHEAA is trying to turn a profit on the backs of teachers because servicing loans for the government is more lucrative than servicing its grants.

According to PHEAA’s latest contract with the federal government, the company is paid $1.05 per TEACH grant recipient and $2.85 for each student loan borrower repaying their debt. The company earns less for borrowers in deferment or forbearance as well as those who are delinquent, yet in most cases even those amounts are higher than the money the government pays for the grant program.

“Anyone who has done their required teaching service in accordance with the spirit of the grant should get their money back,” West said. “This company is taking advantage of people to make a profit. It’s legalized theft.”

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