: The scholar mortgage big that manages public sector lending will cease servicing federal loans

The controversial organization, which has been the main point of contact for civil servants when it comes to issuing student loans for years, will no longer service federal student loans by the end of this year.

The Pennsylvania Higher Education Assistance Agency told the Department of Education's Office of Federal Student Aid Thursday that it would not accept an extension of its student loan service contract "in an effort to better focus on its core public service Pennsylvania, "Keith New, a PHEAA spokesman wrote in an email.

The contract is expected to expire on December 14, 2021.

Moving millions of borrower accounts to a new business can be operationally complex and problematic for borrowers.

While it is a seemingly crooked announcement of federal contracts, the news could affect millions of borrowers. The root causes of the student loan problems in our country are many and varied – stagnant wages, high college costs, government divestments in higher education – but advocates and regulators have for years warned that student loan service provider behavior is addressing borrowers' challenges Paying back their debts made worse. PHEAA is one of three large organizations servicing the government's student loan portfolio.

The announcement comes after years of scrutiny of the administration of the Public Service Loan Forgiveness Program by the PHEAA, an initiative that enables public servants to redeem their federal student loans after 120 monthly on-time payments. Borrowers on track to get their loans canceled under the program make payments through FedLoan Servicing, PHEAA's service arm, and rely on the organization to track their progress on the cancellation.

Massachusetts Attorney General Maura Healey resolved a lawsuit with PHEAA earlier this year accusing the organization of providing public officials with false information about PSLF, which, among other things, delayed their progress toward forgiveness. New York attorney general Letitia James sued PHEAA in 2019, claiming the company had failed to accurately count the number of payments borrowers made in forgiveness. At the time, the organization said that James & # 39; Allegations are unfounded.

Senator Elizabeth Warren, a Massachusetts Democrat who criticized the organization and accused PHEAA CEO James Steeley of lying to Congress earlier this year, cheered the news. New wrote in an email that PHEAA respects the Senate's interest in truthful and accurate testimony, but “categorically denies” that the Steeley testimony at an April hearing was “anything but a truthful and honest endeavor that is multi-part Questions to answer "had been asked by Senator Warren."

"Millions of borrowers today can breathe a sigh of relief knowing their loans are no longer administered by PHEAA, an organization that has robbed countless debt relief officials," she said in a statement.

Smooth transition

What happens next for borrowers whose loans are serviced by PHEAA was not immediately clear. Richard Cordray, chief operating officer of the Department of Education's Office of Federal Student Aid, said in a statement that PHEAA and the agency will work together "to develop and implement a wind-down plan that aims to ensure a smooth transition from borrowers to one." to ensure others ". Loan Administrator. "

The two organizations agreed to work together until all PHEAA borrowers have successfully moved to a different service provider, Cordray said.

"Prepare for the worst, hope for the best, don't panic."

– Betsy Mayotte, President of the Institute of Student Loan Advisors

It is not uncommon for student loan providers to end their participation in the program and allow borrowers to transfer their loans, but moving millions of borrower accounts to a new business can be operationally complex and problematic for borrowers.

For example, when American Computer Services ceased servicing student loans in 2012 and its portfolio was transferred to other service providers, the loans went to new service providers with incorrect loan disbursement amounts and missing records, which may have undermined some borrowers' plans to cancel student loans a report released last year by the Student Borrower Protection Center, an advocacy group, and the American Federation of Teachers.

“What we have seen in the past when the Department made these large transfers is that the company will get away with it while the borrowers will bear the brunt of the months and years of mistakes that resulted in the company going away or being fired "Said Seth Frotman, the executive director of the Student Borrower Protection Center. "That just can't be the case this time."

Cordray said in the statement that PHEAA's plan to execute the maintenance contract will include "strong oversight by the FSA".

Frotman said ensuring a smooth transition also requires oversight from the Consumer Financial Protection Bureau and state law enforcement agencies. In the past, PHEAA has scaled back government efforts to monitor the organization.

High stakes

The transition from one service provider to another can be particularly high for borrowers in a program like PSLF, which requires borrowers to make 120 monthly on-time payments before they can access forgiveness. Any records of payments lost during the transition could delay borrowers' progress toward relief.

While PSLF's promise is relatively simple – work in the public sector, pay back and have your 10 year federal student loan waived – borrowers are struggling to gain access to the program. Proponents have pointed to service providers, including PHEAA, as the primary source of borrower challenges for failing to provide borrowers with enough or the right information to receive the forgiveness they deserve.

Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group, said the challenges at PSLF are related to the complexity of the program. For example, not all federal student loans are qualified.

"Fix coding requirements, fix the law, make it easier for borrowers to access programs they are likely to access," he said.

New, the PHEAA spokesman, pointed to the complicated nature of the student loan program as part of the reason the organization was planning to stop servicing federal loans. In the 12 years since the organization first began servicing federal student loans, the programs "have become more complex and demanding, while the cost of servicing these programs has increased dramatically," New wrote in the email.

The PHEAA announcement comes just a few months before federal student loan payments resume on October 1. Proponents, borrowers, and service providers were already concerned about the challenges of handling tens of million borrowers' repayments after more than a year off from the corona-related relief.

"This whole affair is adding to this tidal wave," said Betsy Mayotte, president of the Institute of Student Loan Advisors. "I think borrowers should expect delays, it might be difficult to get someone on the phone, it might be more difficult to deal with your paperwork."

Mayotte suggested that officials concerned about how the PHEAA transition will affect their progress toward forgiveness should download and keep a copy of their payment history, as well as copies of their employment certification forms – the document borrowers use to ensure that they are on the way to forgiveness.

"Prepare for the worst, hope for the best, don't panic," Mayotte said.

Related Articles