WASHINGTON—The CFPB has issued a report spotlighting complaints from borrowers about student loan servicers mishandling Public Service Loan Forgiveness.
The Public Service Loan Forgiveness program provides people in public service jobs with a path to debt forgiveness after 10 years, with the first borrowers eligible in October 2017. Borrowers report that servicers delay or deny access to loan forgiveness through wrong information about their loans, flawed payment processing, and bungled job certifications, the CFPB said.
The CFPB also issued updated guidelines to prioritize oversight of servicers’ administration of the Public Service Loan Forgiveness program. Also, the Bureau is launching the “Certify Your Service” campaign to help public servants stay on track for federal loan forgiveness (see related story).
“Borrowers have told us about student loan industry practices that delay or deny access to expected help such as the Public Service Loan Forgiveness program,” said CFPB Director Richard Cordray. “We want those in public service jobs who give back to our communities to be able to stay on track, and not worry about unnecessary debt due to servicer errors.”
“We’ve promised our teachers, nurses, first responders, and other public servants that they have a path to a debt-free future if they make their payments on time while serving our communities for a decade,” said CFPB Student Loan Ombudsman Seth Frotman. “When the companies responsible for delivering on this promise aren’t up to the task, our dedicated public servants shouldn’t have to pay the price.”
The Public Service Loan Forgiveness program, launched in 2007, is meant to encourage people to enter public service despite increasing levels of student loan debt. For these borrowers, this program can relieve the financial stress caused by unmanageable student debt and lower-wage public service work. To be eligible, borrowers must have a qualifying loan; be enrolled in a qualifying repayment plan, such as an income-driven repayment plan; and make 120 on-time payments while working for a qualified public service employer. Student loan servicers are responsible for administering these requirements.
The CFPB estimates that 25% of the U.S. workforce is employed in some form of public service, and many may be eligible for loan forgiveness under this program. These include teachers, social workers, first responders, servicemembers, nurses, and other public health professionals. So far, more than 500,000 people have signaled their intention to pursue debt relief under this program. According to the Department of Education, almost two-thirds of them earn less than $50,000 per year, and 86% earn less than $75,000 per year. In October 2017, the Department of Education will begin accepting applications from the first round of eligible borrowers seeking loan forgiveness under this program.
The report highlights complaints about servicing problems that may knock borrowers off track as they seek loan forgiveness earned through their public service and guaranteed by federal law. The report analyzes complaints from March 1, 2016 through Feb. 28, 2017. Some borrower complaints describe industry practices that delay or deny access to promised loan forgiveness, forcing some to forfeit months or years of qualifying service. This can add hundreds or thousands of dollars to the total cost of borrowers’ student debt, the CFPB said.
The report spotlights borrower complaints about:
- Incorrect or insufficient information from servicers about loan forgiveness eligibility: Borrowers said they are not receiving timely or accurate information about eligibility for these benefits, even after they identify themselves as public service workers. This missing information can trigger months or years of unnecessary loan payments and cost consumers thousands of dollars. “For example, one borrower reported that his servicer failed to tell him he needed to consolidate his loans to be on track for loan forgiveness until after he left the military, which meant that none of his military service would count,” the CFPB said.
- Processing delays and errors that cause borrowers to miss out on qualified payments: To stay enrolled in the Public Service Loan Forgiveness program, borrowers must recertify their income and family size each year. When borrowers submit their recertification application on time, they can stay on their repayment plan and continue making payments until the servicer processes the application. But borrowers complain that servicers will instead put them in forbearance, which prevents them from making payments that qualify for loan forgiveness. Others report that when employers help in making student loan payments, servicers misapply these payments in a way that denies the borrower credit toward loan forgiveness, the agency explained.
- Job certification problems that knock borrowers off track: Borrowers can submit a form prepared with their employer to get an update on how many qualified payments the borrower has made under the loan forgiveness program. Some borrowers reported they believe they are fulfilling the program’s requirements, yet wrongly receive denials from servicers when trying to track their progress. Borrowers also complain that they do not know how to take action to correct a mistake because their servicer does not explain the denial. This can result in miscounts of qualified payments that can knock them off track toward loan forgiveness, the CFPB said.
The CFPB has also updated its guidelines to prioritize its supervision of potentially illegal practices used by student loan servicers to administer loan forgiveness benefits. Bureau supervision examinations will look at whether servicers tell eligible consumers what they need to do to qualify for forgiveness, warn consumers who believe they are on track to qualify when they are not, provide clear information about the loan forgiveness program, and accurately evaluate borrowers’ eligibility and progress toward loan forgiveness.
Today’s report is available at: http://files.consumerfinance.gov/f/documents/201706_cfpb_PSLF-midyear-report.pdf
The updated Bureau manual for student loan servicer supervision is available at: http://files.consumerfinance.gov/f/documents/201706_cfpb_Education-Loan-Servicing-Exam-Manual.pdf