Students Seeking Public Service Loan Forgiveness Sue PHEAA Over ‘Negligent’ Servicing Practices

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A proposed class action recently removed to Georgia federal court alleges the Pennsylvania Higher Education Assistance Agency (PHEAA) has failed to uphold its end of the bargain for student loan borrowers seeking loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program.

According to the lawsuit, the agency, which does business as FedLoans Servicing, Inc., significantly delayed or prevented students from receiving loan forgiveness under the program by failing to count qualifying payments, making errors on employment certification forms, and misreporting the status of their loans.

The case explains that the PSLF program allows loan forgiveness to be granted to federal student loan borrowers who are employed full-time by public service employers and make qualifying payments for 10 years. The program, the case goes on, was set up to encourage graduates with significant student loan debt to take jobs in public service that they would otherwise turn down due to the traditionally lower salaries offered by public service employers when compared to those in the private sector.

FedLoans Servicing became the sole servicer for the PSLF program in 2012, the case says, yet has negligently impeded student loan borrowers from receiving forgiveness by:

• failing to count qualifying payments that were made to previous servicers;
• failing to count qualifying early payments that were “not received within the billing period”;
• incorrectly approving students’ employment certification forms only to later revoke the approval and void months or years of payments; and
• falsely reporting to third parties that students’ loans were in default when they were current.

The lawsuit claims PHEAA’s negligence caused significant harm to the plaintiffs and other student loan borrowers who may have been forced to pay hundreds or thousands of dollars more than they would have absent the servicer’s conduct. From the complaint:

“Defendant breached its common law, statutory, and other duties and thus was negligent by failing to use reasonable measures to service Plaintiffs’ and the class members’ loans correctly and on time. In connection with the conduct described above, Defendant acted wantonly, recklessly, and with complete disregard for the consequences.”