Feds Warn Against Lies About Public Service Loan Forgiveness

The Consumer Financial Protection Bureau (CFPB) is warning student loan servicers not to make deceptive statements about loan forgiveness for students who go on to work in public service jobs.

“Illegal conduct by a student loan servicer can be ruinous for borrowers who miss out on the opportunity for debt cancellation,” said CFPB Director Rohit Chopra in a news release. “We will be working closely with the U.S. Department of Education to ensure that loan cancellation promises for public service are honored.”

It’s the latest in a series of actions against deceptive student loan practices that have left millions of students drowning in debt. Earlier this week, the Department of Education forgave $415 million in student loans owed by students at DeVry University and other for-profit schools.

Many thousands of students took public-service jobs because they were promised that their student loans would be partly forgiven after a certain interval. Today, many of them continue to struggle to collect on that promise, while working at public-service non-profit jobs that pay a fraction of what they might otherwise be making.

Student loan servicers are generally to blame. They are the companies that manage student loan accounts. Student borrowers generally do not have the power to choose their servicer so they are powerless to prevent being victimized by financial loss and humiliated by endless attempts to collect on the government’s promise.

PSLF enacted in 2007

At the heart of the controversy is the Public Service Loan Forgiveness Waiver (PSLF), part of a measure enacted by Congress in 2007 to provide loan cancellation for borrowers working in an eligible public service job.

For public service employees with direct loans, PSLF cancels the remaining balance on those loans after they make 120 loan payments while working for a qualifying employer.

Despite one government estimate that 1.3 million borrowers qualify for PSLF, the CFPB has documented how poor servicing practices have blocked many borrowers from making progress toward relief, such as by giving them inaccurate information about how they can become eligible for debt cancellation.

The CFPB said it has found that servicers made deceptive statements to borrowers about whether they could become eligible for PSLF. When servicers fail to provide accurate and complete information, they mislead borrowers about their ability to benefit under PSLF, which can lead to tens of thousands of dollars in loan payments that should have been cancelled.

Today, the CFPB released a bulletin detailing student loan servicers’ obligation to halt unlawful conduct regarding borrowers’ eligibility and benefits under the waiver. The bulletin recommends actions servicers should consider taking to ensure they do not misrepresent borrower eligibility or make deceptive statements to borrowers about the PSLF program and the Waiver.

Benefits extended in 2021

In October 2021, the Department of Education announced that it was extending PSLF benefits to borrowers who had been shut out of the program, including those who had not been given correct information about their eligibility.

Under the waiver, any past payment on a federal student loan by a borrower working in public service can count toward PSLF, regardless of payment plan, loan type, or whether the payment was made in full or on-time. This includes payments made through the Federal Family Education Loan (FFEL) and Federal Perkins Loan Programs, which did not previously count under the old PSLF rules.

Many borrowers will need the assistance of their student loan servicer to take action by consolidating their loans, filing a PSLF application, or both, before the waiver ends on October 31, 2022.

“We want to make sure that every single borrower who could benefit from the PSLF Waiver has the chance to do so, and giving borrowers accurate and timely information about their eligibility is critical,” said U.S. Secretary of Education Miguel Cardona. “I appreciate the CFPB’s partnership in holding servicers accountable for their role in helping borrowers access loan forgiveness under PSLF.”

Servicers told to toe the line

In its statement today, the CFPB said it expects servicers to comply with federal consumer financial protection laws and said it plans to prioritize student loan servicing oversight work in the coming year.

The CFPB said it will pay particular attention to whether:

• Servicers of any federal loan type provide complete and accurate information about the PSLF Waiver when discussing PSLF or loan consolidation in any communications.
• Servicers have adequate policies and procedures to recognize when borrowers are expressing interest in PSLF or the PSLF Waiver, or where their files otherwise demonstrate their eligibility, and to direct those borrowers to appropriate resources.
• Servicers take steps to promote the benefits of the PSLF Waiver to borrowers who express interest or whose files otherwise demonstrate their eligibility.

The CFPB has previously used its law enforcement and supervisory authorities to address illegal student loan servicing practices. The CFPB’s enforcement work, including actions against Wells Fargo and Discover, has led to tens of millions of dollars in borrower refunds and penalties. The CFPB also sued Navient, the nation’s largest student loan servicer, for widespread violations in its student loan servicing business. The litigation is ongoing.