FedLoan Servicing is one of the major student loan servicers. Its parent company Pennsylvania Higher Education Assistance Agency (PHEAA), has a $450 billion worth loan portfolio. Considering that the total student debt is $1.6 trillion, the PHEAA has a significant share. If you ever wanted to consider Public Service Loan Forgiveness, you might be well aware of FedLoan Servicing. This loan servicer is the only company dealing with the PSLF program. In 2017, the Education Department decided that it would be less costly if only one loan servicer dealt with the forgiveness program, and they chose FedLoan Servicing. Although this lender serves a huge number of borrowers, they also face claims against their operations. The FedLoan lawsuit of 2017 or 2019 is the most challenging allegations the company ever faced.
The main claims are that the loan servicer failed to direct borrowers properly and miscounted payments which harmed people in need of forgiveness opportunities.
This guide will present the previous lawsuits and share some tips to help borrowers avoid common loan servicer problems.
Is FedLoan Servicing Legit?
If you received a notice that your loan servicer is FedLoan Servicing, do not worry; it is a legit company serving student loans since 2009. Although it serves a multitude of borrowers, the company is also known for its poor customer service.
2017 FedLoan Lawsuit
One of the major lawsuits FedLoan, or its operator Pennsylvania Higher Education Assistance Agency (PHEAA), faced started in 2017. Massachusetts Attorney General Maura Healey started an investigation against this company.
What were the Claims?
The base of this FedLoan lawsuit was incorrect processing of payments. The Attorney General claimed that the company created barriers for borrowers in need of Public Service Loan Forgiveness rather than helping them. The company allegedly delayed processing payments. As the forgiveness program requires on-time, full-time payments for qualification, many borrowers lost their chances to submit a qualifying payment. Besides, this FedLoan lawsuit claimed that the servicer misled the borrowers. When they were obliged to help debtors choose suitable repayment options, they pushed borrowers to get loan forbearance status.
Another group of harmed people was those working for TEACH grants. The grant is not required to be repaid. However, the borrowers should serve as teachers and certify their employment regularly. The FedLoan lawsuit alleged that the company employees made minor errors in documentation which hurt people’s TEACH grant status. In some cases, the borrowers were obliged to repay the grant.
Settlement
After around four years, at the beginning of 2021, FedLoan Servicing’s operator PHEAA and Attorney General’s office reached a settlement. The settlement empowered borrowers to request an account review from the loan servicer. In this way, the servicer should identify and correct the mistakes.
If the correction is not possible, the loan servicer should make payments to harmed borrowers. Teachers who wrongfully were obliged to repay the TEACH grant got a chance to get compensation from the loan servicer. It was estimated that the settlement could assist around 250000 borrowers. The Attorney General also mentioned that the office would monitor the FedLoan’s activities to ensure they follow the settlement terms.
The Response of Loan Servicer
Although settlement is achieved in this FedLoan lawsuit, the loan servicer nor its operator, Pennsylvania Higher Education Assistance Agency, admitted any wrongdoing. The loan servicer once again ensured its commitment to provide excellent student loan services.
2019 FedLoan Servicing Lawsuit
Unfortunately, the 2017 FedLoan class action lawsuit was not the only case against the loan servicer. In 2019, another investigation started against FedLoan Servicing, but this time by the New York Attorney General. The claims in this lawsuit are similar to previous cases.
The Base of Lawsuit
The Attorney General claimed that the loan servicer mishandled the payments for forgiveness programs. As mentioned before, the Public Service Loan Forgiveness requires qualifying payments to eliminate the debt. The borrowers should make 120 payments before they get forgiveness. The loan servicer- FedLoan Servicing- is responsible for counting payments and inform borrowers about their progress.
Unfortunately, the lawsuit claims that the company made mistakes while counting the payments and provided incorrect information. Hence, many borrowers got rejections from this forgiveness program. It was also added that less than 900 cases out of 90000 applications were successful, which means more than 90% of applicants got rejected.
Involved Parties’ Opinions in the Lawsuit
The Attorney General mentioned that the Fed Loans practices are unfair to people who spend at least ten years in the public sector to get forgiveness. Hence, the loan servicer should stop these practices and help the borrowers who got harmed by them due to the FedLoan lawsuit.
In turn, the FedLoan Servicing did not accept any wrongdoing. The spokespeople noted that the loan servicer is willing to communicate with the Attorney General’s office for resolution of issues. They also mentioned that the lawsuit has no merit, and they are ready to defend themselves in the lawsuit.
A third-party opinion by the Government Accountability Office audit has a different approach. The audit claims that the Education Department failed to provide clear directions to FedLoan servicing. Hence, FedLoan Servicing was obliged to interpret the instructions, which were explained poorly. As a result, miscommunication emerged among the FedLoan Servicing and other loan servicers, which led to the incorrect count of eligible payments.
Regardless of whose fault it was, one thing is crystal clear- misleading practices harm the borrowers, and they need help to resolve their cases.
What is Wrong with Public Service Loan Forgiveness?
Public Service Loan Forgiveness is a program that eliminates student debt after the borrowers make 120 qualifying payments. Therefore, achieving forgiveness through this program takes a minimum of 10 years. During the progress toward 120 payments, the borrowers are required to serve in the public sector.
However, the eligibility criteria do not end with this condition; there are many qualifications required to become eligible. The complexity of eligibility is one of the main reasons why people fail successful applications.
According to the Education Department, around 1500 got forgiveness till 2019, since the program’s inception in 2007. Considering that 100000 borrowers applied to this forgiveness opportunity, the approval rate is around 1%.
Besides eligibility challenges, it is the mishandling of the process, like in the case of the FedLoan lawsuit, which stops borrowers from getting forgiveness. FedLoan Servicing is the only loan servicer in charge of Public Service Loan Forgiveness. If, based on allegations, FedLoan Servicing incorrectly counts the qualifying payments, it will have a huge negative impact on the number of eligible borrowers.
What Changes Can be Expected?
Luckily, the complexity of Public Service Loan Forgiveness is well-recognized by the current administration. In his “Plan for Education beyond High School,” Joe Biden mentioned that public servants should not face such challenges while applying for forgiveness.
Hence, he suggests changing the structure. Instead of waiting for ten years, borrowers can get $10,000 forgiveness after each year of service. Borrowers can apply to this opportunity five times, which means the maximum forgiveness benefit will be $50,000.
These changes might be expected, but there is no guarantee that they will be put into law.
How to Avoid Such Issues?
Some problems with FedLoan Servicing can be handled, while others are hard to avoid. If you want to apply for Public Service Loan Forgiveness, the only loan servicer is FedLoan Servicing. Hence, you will be pushed to this servicer, and there is no other solution.
However, by staying more informed, you can be one step ahead.
1. Get Familiar with Your Options
Some borrowers fully rely on the loan servicers to handle their debt management. This strategy can be harmful, as, in the FedLoan Servicing lawsuit, it was visible that human errors might happen in the process. Hence, before trusting the advice, go and check your options.
You can check the official Student Aid website to get more information about forgiveness programs, repayment plans, and benefits like deferment or loan forbearance. If you have enough knowledge of programs, you might know your rights and options for the debt concerns.
2. Refinancing can Help
One of the ways to change the loan servicer is refinancing the loan. Some borrowers have multiple loans from different lenders, while others struggle with the single lender. In both cases, student loan refinancing will help you change the lender or loan servicer.
Refinancing happens when you get a new loan and pay out the existing debt. In this way, you get rid of the existing lender and start your debt repayment with a new, preferred loan servicer,
3. Keep Proofs
Regardless of your loan type, loan servicer, or lender, you need to understand the responsibility you take by incurring student debt. You have to be ready for any kind of challenge while repaying the debt.
Since the first contact with your lender, you need to keep important documents and even those that seem trivial for cases like the FedLoan lawsuit. When a problem occurs with your debt payments, you can prove your claims with contact, email communications, bills, etc. Hence, be cautious and collect any document that is related to your debt.
I want to Refinance. What Should I Do?
If you want to change your loan servicer, you can refinance your loan. The first thing you have to do is finding your preferred lender. Many organizations, including Laurel Road, SoFi, Earnest, College Ave, or Commonbond, provide loan refinancing services.
Check their offerings and compare to find the most suitable option for you. You can compare the interest rates, repayment plans, or payback periods. Some lenders also have options for a cosigner, benefits like auto-pay interest reduction or loan forbearance options.
Once you choose the lender, try to use their “pre-qualification” tool. This tool shows borrowers their eligible interest rates. Although the result is not 100% accurate, this tool helps identify whether the borrower will qualify for the refinancing.
Eligibility Conditions
The eligibility conditions for refinancing are simpler compared to other programs. It requires stable income and good credit performance. If the borrower lacks these elements, they might be required to have a cosigner.
A cosigner is a third-part that takes the responsibility to repay the debt if the borrower fails. The cosigner should also meet the same eligibility criteria, including income and credit performance. The desirable credit score for this program is 600 or more. The higher the score, the lower the interest rate of the refinancing loan.
Advantages of Refinancing
The benefits of student loan refinancing go beyond changing loan servicer. Refinancing can help borrowers to exploit better opportunities and save money. For example, if the interest rates are falling, it can be a good time to refinance. When you get a new loan, your interest can be lower than the previous one.
Besides, if you improve your credit performance, you can get better terms for your new loan. In this way, you can decrease monthly loan payments and save money in the long run.
Most lenders provide variable and fixed-rate refinancing loans. It means, if you want to change from fixed to variable or vice versa, you can refinance your loan.
However, if you have federal loans, you need to think twice before refinancing. Refinancing can make you ineligible to most of the programs available to federal loan borrowers. When you do not qualify for any government assistance options, you can think about student loan refinancing.
What Other Options I have?
If you have federal loans and became a victim as a result of the FedLoan Lawsuit, many forgiveness, discharge, and repayment plans exist to help you. For private student loan borrowers, there exist fewer opportunities to reduce or eliminate debt. Hence, one of the best options for such borrowers is refinancing. Regardless of your loan type, if you want to know more debt resolution strategies, you can contact Student Loans Resolved experts. Our debt specialists have years of experience helping people like you to get rid of their student loans. Therefore, they can develop a more suitable and affordable debt resolution plan to eliminate your loan concern once and for all.
