Risk & Compliance

New York Sues Student Loan Servicer

The state says one of the largest federal student loan servicers is mishandling debt forgiveness for public service workers.
Lauren MuskettOctober 4, 2019

New York State Attorney General Letitia James has filed a lawsuit against the Pennsylvania Higher Education Assistance Agency, saying the agency has failed to properly administer the Public Service Loan Forgiveness program, which was created to encourage graduates to work in public service by offering loan forgiveness.

The office said approximately 99% of all Public Service Loan Forgiveness applicants have been rejected and cited “unfair and abusive” practices at the PHEAA for the “shockingly high rate.”

“PHEAA’s abuses have not only denied these dedicated public servants the benefits they have earned, but have undermined the goals of the loan forgiveness program,” James said in a statement.

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A spokesperson for the PHEAA said the allegations had no merit and the agency would vigorously defend itself.

“Over the years, PHEAA has cooperatively worked with the New York AG’s office, along with many other regulators throughout the nation, to review specific borrower concerns and to identify and implement appropriate resolutions as they arise,” the spokesperson said.

In 2017, the Massachusetts Attorney General’s office sued the PHEAA alleging the agency prevented borrowers from making qualifying payments to count toward loan forgiveness and overcharged students.

This February, a report from the U.S. Department of Education’s inspector general said that, in calls with borrowers that were monitored in April 2017 and May 2017, PHEAA’s “fail” rates were 10.6% and 8.8%, higher than any other servicer and more than double the respective monthly averages.

The New York AG’s lawsuit is seeking restitution, damages for borrowers, and a $1 million fine for each day PHEAA broke the law. It accuses the PHEAA of fraud and violations of the Dodd-Frank finance law.

The case is being handled by special counsel Carolyn Fast and Assistant Attorney General Sarah Trombley of the Consumer Frauds and Protection Bureau.

The PHEAA manages more than one-quarter of the nation’s student loan debt.

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