23 Senators Demand Investigation Into Mismanagement Of Student Loan Program

Oct 29, 2019
Originally published on November 25, 2019 9:13 am

Updated at 4:20 p.m. ET

Twenty-three U.S. senators are calling on the nation's top consumer protection agency to investigate a loan servicer for its role in a troubled student loan forgiveness program. The program is designed to help public service workers like teachers and police officers.

The loan servicer, the Pennsylvania Higher Education Assistance Agency, better known as FedLoan and PHEAA, is one of the entities that handles the Public Service Loan Forgiveness Program.

"For several years now, government watchdogs have repeatedly found that PHEAA's missteps, errors, and mismanagement of the PSLF program caused public service workers to be denied the loan forgiveness that they had earned," the senators said in a letter to Kathleen Kraninger, director of the Consumer Financial Protection Bureau.

The senators, all Democrats, include Sherrod Brown, Amy Klobuchar, Bernie Sanders and Elizabeth Warren. The letter was obtained by NPR.

"Public service workers and their families need immediate protection from ongoing harm," the senators wrote. "We therefore ask that the CFPB do its job and immediately open an enforcement investigation into PHEAA's servicing practices, management of the PSLF program, and other potential violations of federal consumer financial laws."

The Public Service Loan Forgiveness Program aims to help police, military service members, teachers, people who work at nonprofits and others. If they make qualifying payments for 10 years, the program promises to forgive the remainder of their student loan debt.

But, as NPR has reported, the program is rejecting 99% of people who think they have done that when they apply to get their loans forgiven.

Sen. Brown of Ohio told NPR in an interview Tuesday that there are "far too many people who expected to be part of this loan forgiveness and they find out in their eighth or ninth year that they're not eligible, and that's just outrageous."

The CFPB did not immediately respond to a request for comment about the senators calling for the investigation. In a statement, the loan servicer said it is committed to compliance and regulatory requirements. "PHEAA has a long history of cooperating with the CFPB and consistently responds to inquiries to the fullest extent permitted by federal law and governing regulations," it said.

In their letter, the senators cited a 2017 report by the CFPB's student loan ombudsman. The report found that public service workers had been denied for loan forgiveness because of PHEAA's "flawed payment processing, botched paperwork and inaccurate information," the senators wrote.

And a 2018 Government Accountability Office report "found that public service workers had improperly been denied loan forgiveness because of PHEAA' s inability to properly account for qualifying payments and reliance on inaccurate information," the senators wrote.

Earlier this month, senators pressed Kraninger in a hearing after NPR reported that the CFPB sent examiners into loan servicing companies but that the effort was blocked by the Trump administration's Department of Education. The department essentially told servicers not to cooperate and provide the examiners with information. Senators told Kraninger she should use the power of her consumer protection agency to force the companies to comply.

In a statement, the Department of Education said it "takes its responsibility to provide high-quality service to federal student loan borrowers very seriously." It added that the high denial rates in the Public Service Loan Forgiveness are "by Congressional design, not by accident or failed implementation by the Department." And the department noted that it has created a help tool for borrowers and has increased its outreach to them.

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Twenty-three Democratic senators want the nation's most powerful consumer protection agency to launch an investigation. In a letter, they asked the agency's director to immediately look into mismanagement at a loan servicer that handles student debt.

NPR's Chris Arnold has obtained the letter and joins us now. Hi, Chris.


SHAPIRO: What is in the letter?

ARNOLD: Well, at the heart of all this stuff that's in the letter is a federal program to forgive student loan debt for public service workers. And this program, by any measure, is not working. And the way it's supposed to work - it's pretty simple. If you're a police officer, you're in the military, you work for a nonprofit - if you make payments for 10 years, the remainder of your student loan debt is supposed to be forgiven. The problem is the devil's in the details. It's more complicated than it sounds. And a lot of people think they did this the right way, and then they get rejected. Here's Senator Sherrod Brown, who spoke to NPR today after he sent this letter with 22 other senators.

SHERROD BROWN: There are far too many people who expected to have - to be part of this loan forgiveness and they find out in their eighth or ninth year that they're not eligible, and that's just outrageous.

ARNOLD: We should say, too, various government watchdog outfits have filed scathing reports about this. One number to keep in your head - only 1% of people are getting approved.

SHAPIRO: What does this have to do with the Consumer Financial Protection Bureau and the loan servicer that is mentioned in the letter?

ARNOLD: Well, we did a story recently and found out that the Consumer Protection Bureau had sent examiners into multiple outfits like this - some of them were companies - and trying to figure out what's going on with this troubled loan program. I mean, that's the Consumer Bureau's job - right? - to protect consumers in these - in this case, student loan borrowers. But it turns out that there's a turf war going on between the bureau and the Department of Education - the department makes the vast majority of student loans - and this turf war got in the way of those examiners from the Consumer Protection Bureau finding much of anything out.

And the message from the senators is, hey, look, Consumer Protection Bureau, you're a law enforcement agency. The courts are on your side. Just push ahead and get to the bottom of this. So Sherrod Brown says the bureau's Trump-appointed director is not doing that. And that's, in effect, choosing sides, choosing the Ed department and these loan servicers over student loan borrowers.

BROWN: Over our military families, over public servants who thought their debt would be forgiven. They feel betrayed, and they should feel betrayed for what's happened.

SHAPIRO: So, Chris, explain why senators are targeting this one servicer.

ARNOLD: Well, a lot of experts think the problem is much broader than any one organization. But the letter names the Pennsylvania Higher Education Assistance Agency. It's a mouthful. Because it's a mouthful, it's called FedLoan for short. It's the main so-called loan servicer, like you're saying, that helps manage this particular loan forgiveness program. So the letter appears to be singling out FedLoan in part for that reason.

SHAPIRO: Just briefly, what has the response been from FedLoan and the CFPB and the Department of Education?

ARNOLD: FedLoan says basically, look, we'll cooperate with the bureau. We always do, to the fullest extent permitted by law. We're waiting to hear back from the Consumer Protection Bureau. The Ed Department actually kind of doubled down on the turf war, saying it has jurisdiction here, it has oversight of these loans, not the CFPB. And meanwhile, there's a lot of police officers and nurses and other public service workers who really need this program to get fixed.

SHAPIRO: NPR's Chris Arnold, thank you.

ARNOLD: Thanks, Ari. Transcript provided by NPR, Copyright NPR.