Class Action Takes Issue with PHEAA’s Student Loan Servicing Practices

New to ClassAction.org? Read our Newswire Disclaimer

Pennsylvania Higher Education Assistance Agency (PHEAA) is facing another proposed class action that claims the student loan servicer attempted to delay debtors' loan forgiveness in order to continue collecting interest and fees. The suit notes that the defendant – which does business as FedLoan Servicing and American Education Services – is responsible for collecting payments owed to the Department of Education and earns interest along with “various subsidies and special allowance payments” for each of the loans in its portfolio.

The complaint explains that PHEAA is also responsible for approving consumers’ applications to student loan forgiveness programs such as the Public Service Loan Forgiveness (PSLF) program, the Teacher Education Assistance for College and Higher Education (TEACH) program, and Income Driven Repayment (IDR) plans. Each of these programs, the case continues, provides loan forgiveness after debtors have made a certain number of qualifying payments toward their loans.

“But,” the suit poses, “helping these borrowers get out of debt sooner directly conflicts with PHEAA’s financial interest in collecting interest and servicing fees on active loans.” The lawsuit argues that the defendant has orchestrated a scheme to extend the length of debtors’ loans, and therefore earn more revenue, by improperly delaying or failing to process their applications to forgiveness programs and incorrectly placing their loans into “forbearance” or “deferment” status. The case points out that debtors’ payments don't count toward forgiveness programs before their applications are approved or while their loans are in forbearance or deferment. Therefore, the complaint concludes, debtors are unjustifiably required to pay more than they would have absent the defendant’s conduct.