PHEAA Accused of Delaying Student Loan Forgiveness, Collecting Extra Fees

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Three student loan borrowers have filed suit against Pennsylvania Higher Education Assistance Agency (PHEAA) claiming the defendant attempted to illegally extend the duration of student loans in order to continue collecting monthly servicing fees. The suit argues that PHEAA, which does business as FedLoan Servicing and American Education Services, committed the following unlawful practices:

• delayed processing applications for loan forgiveness programs such as the Public Service Loan Forgiveness Program (PSLF) and the Teacher Education Assistance for College and Higher Education (TEACH) program, causing applicants to make additional payments on loans “that otherwise would have been forgiven;”
• delayed processing Income Driven Repayment (IDR) plans, preventing borrowers from submitting qualified payments to count toward the 20-year repayment period after which their loans would be forgiven; and
• improperly placing into deferment or forbearance status loans on which borrowers had been making timely payments, disqualifying any payments they made during deferment or forbearance from counting toward loan forgiveness.

The suit argues that these delays allowed the defendant to continue charging monthly fees for servicing borrowers’ loans that it would have been unable to collect absent its unlawful behavior.

“As a result,” the complaint alleges, “Plaintiffs and the [proposed class members] have either lost out on months or years of qualifying loan payments that would have brought them closer to loan forgiveness under the PSLF, TEACH, and IDR programs; been overcharged; or otherwise disadvantaged when they were unable to utilize federal programs designed to make their education more affordable.”