Student Loan Borrowers Face Delays, Bad Information About Loan Forgiveness Program

Image courtesy of ken fager

The Department of Education’s Public Service Loan Forgiveness program allows student borrowers a way to eventually erase federal student loan debt by working for the government or at a non-profit for 10 years. Students have already accused the government of failing to keep its promise, and a new report not only appears to bolster this claim but shines a light on other concerns about other roadblocks to loan forgiveness.

The Consumer Financial Protection Bureau today released a report [PDF] highlighting borrower complaints about student loan servicers mishandling the Public Service Loan Forgiveness program.

For those unfamiliar, in 2007 the government began offering a public service loan-forgiveness program that will forgive certain federal student loans for borrowers who work for government organizations and non-profit groups for 10 years and make 120 on-time monthly payments on their loans.

This October will mark the first time that student loan borrowers enrolled in the program will have their debts wiped clean.

Currently, there are about 550,000 borrowers who have signaled their intent to pursue debt relief through the program.

Additionally, 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.

However, according to the report, many borrowers aren’t receiving proper notification of this eligibility.

For instance, the CFPB’s new report, which analyzed complaints from March 1, 2016 through Feb. 28, 2017, found that borrowers experienced delays or denials of access to promised loan forgiveness, forcing some to forfeit months or years of qualifying service.

This, the CFPB contends, can add hundreds or thousands of dollars to the total cost of borrowers’ student debt.

A Plethora Of Complaints

The most common complaints submitted to the CFPB involved loan servicers providing incorrect information about eligibility, delays or errors processing payments, and errors in job certifications.

INCORRECT OR INSUFFICIENT INFORMATION ON ELIGIBILITY 

Borrowers tells the CFPB that they are not receiving timely or accurate information about eligibility for the Public Service Loan Forgiveness program. In some cases, this occurred even after the borrower notified the servicer that they were a public service worker.

In one instance, a 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 toward his years of public service.

This missing information can trigger months or years of unnecessary loan payments and cost consumers thousands of dollars, the CFPB reports.

DELAYS AND ERRORS

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.

However, some borrowers tell the CFPB that servicers will instead put them in forbearance, which prevents them from making payments that qualify for loan forgiveness. Others complained that when employers help in making student loan payments, servicers misapply these payments in a way that denies the borrower credit toward loan forgiveness.

In other cases, the borrowers tell the CFPB that when attempting to consolidate their loans in order to be eligible for the program, they experienced significant delays.

While the process is supposed to take no more than 30 days, some borrowers report that consolidation took more than six months because their original servicers did not provide the necessary information to complete the consolidation.

CERTIFICATION PROBLEMS

As part of the Public Service Loan Forgiveness program, borrowers must work for an eligible government organization or non-profit group for 10 years.

While it’s fairly simple to determine what a government agency is, finding a qualified non-profit is more difficult. For that reason, the Dept. allowed prospective program participants to fill out an Employment Certification for Public Service Loan Forgiveness form.

However, as cited in a lawsuit against the Dept. of Education, some borrowers reported they believed they were fulfilling the program’s requirements when they weren’t.

In some cases, the borrowers say they thought they were making payments toward the program, yet wrongly receive denials from servicers when trying to track their progress.

One borrower tells the CFPB that he only learned he wasn’t actually enrolled in the program after believing he was for four years.

“I have been paying for 4 years and was misled by this company completely… Now I have consolidated my loans [into a] a direct loan, and have one payment toward my 10 years,” the borrower wrote.

Borrowers also complain that when they do receive a denial, they don’t know how to fix the problem because servicers do not explain the reason they were denied.

For instance, borrowers report being unsure on whether there was an error on the application, an inability of the servicer to confirm borrowers’ employment information, or a servicer error in processing the application.

In one example, a borrower explained that his application was denied because the servicer determined his employer was not qualified, but a week later, his coworker’s application was approved.

Making Changes & Improving Awareness

In addition to providing a snapshot on servicing issues related to the Public Service Loan Forgiveness program, the CFPB updated its guidelines [PDF] to prioritize its supervision of potentially illegal practices used by student loan servicers.

Now, the agency says that 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.

This will be part of the CFPB’s regular oversight of these companies’ compliance with federal consumer law, the Bureau says.

In order to better inform consumers of their rights under the program, the Bureau today launched the “Certify Your Service” education campaign.

The campaign includes guides developed specifically for first responders and teachers about what programs are available, which ones are best for each individual’s circumstance, and how to get on the path to loan forgiveness.

Consumers aiming for Public Service Loan Forgiveness should:

• Make sure they have the right type of loans: Only federal Direct Loans qualify for loan forgiveness under the Public Service Loan Forgiveness program. A borrower with another type of federal loan may be able to consolidate it into a Direct Consolidation Loan to become eligible for Public Service Loan Forgiveness.

• Enroll in the right repayment plan: Income-driven repayment plans set the payment based on a borrower’s income, which may lower the monthly payment and maximize the amount forgiven. Some repayment plans, like extended repayment plans, don’t count toward Public Service Loan Forgiveness.

• Certify that the work is in public service: Borrowers should submit an Employer Certification Form to track the progress of payments and to let the servicer know that they are working toward Public Service Loan Forgiveness. Employers can choose to provide this form to employees through their human relations office, or can find more information at consumerfinance.gov/pledge.

• Stay on track: Borrowers should keep copies of the completed form for their records and follow up with their servicer after they submit the form. Borrowers should also submit updated forms each year and each time they change employers to keep track of qualifying payments.

Will It Even Be Around?

While the CFPB is bringing awareness to issues surrounding the Public Service Loan Forgiveness program, it could be for naught, as the program has been earmarked for elimination under the Dept. of Education’s proposed budget.

According to the Department’s proposal, the program would be eliminated as a way to “streamline the pathway to debt relief for undergraduate borrowers and to help put the nation on a more sustainable fiscal path.”

By eliminating the program, the Dept. estimates it will save $859 million in 2018.

Dept. officials have said that the program’s elimination will not apply to estimated 550,000 borrowers currently enrolled in the plan.

In all, the Dept. estimates changes to student loan programs would save $143 billion over 10 years. Any final education budget will ultimately have to be approved by Congress, which, as we’ve learned in the past, could take up the whole thing or ignore it completely.