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New York State Attorney General Sues College Student Loan Servicer

By Carol Elizabeth Owens

NYS Attorney General Letitia James sued the Pennsylvania Higher Education Assistance Agency (PHEAA) on October 3, 2019, alleging that the agency failed to properly administer the federal Public Service Loan Forgiveness (PLSF) program.

PHEAA operates as ‘FedLoan Servicing’, and is one of the largest student loan servicers in the United States. The program was created in 2007 to encourage graduates to work in public service.  Its purpose is to forgive student loan indebtedness of borrowers who, while working in public service for 10 years, make 120 qualifying student loan payments. 

The lawsuit alleges that many New Yorkers who are eligible for the PLSF program have been denied forgiveness of their student loans even though they actually qualify for it.  Notably, more than 98-percent of applicants have been rejected as ineligible for forgiveness. Further, the suit asserts that PHEAA’s ‘deceptive, unfair and abusive practices’ have largely caused a high number of student loan forgiveness application to be rejected.

“Hard-working New Yorkers have been left with nothing but the runaround and broken promises, after giving a decade of honorable public service to [New York] state and our nation,” James said in a statement.

PLSF is intended to serve as an incentive for college graduates to take lower paying jobs in the public sector and at nonprofit organizations.  Such occupations as teaching, nursing, social work, firefighting, and military service are among the types of work that qualify for PLSF.  Service in such jobs often involves assisting veterans, the elderly, low-income children, people with disabilities, victims of domestic violence, and other vulnerable groups.

The lawsuit alleged specific failures in administering PLSF including:  Not accurately counting PLSF qualifying payments; not applying policies consistently; not providing borrowers with explanations of its determinations; and not informing borrowers of their options to appeal FedLoan’s mistakes or undo related consequences.  Among other things, the attorney general says these failures have caused New York borrowers’ loan balances to increase, and have also extended their repayment time periods.

James says that PHEAA has “undermined the goals of the loan forgiveness program” by denying “dedicated public servants the benefits they have earned.”  Speaking on behalf of the NYS Attorney General’s office, James also says they “will never tire in [their] efforts to hold companies accountable for their lies and deception,” and “will never stop fighting to advocate [for] our state’s public servants.”