A $1 million civil money penalty (CMP) has been assessed against a student loan servicer for allegedly deceiving borrowers about public student loan forgiveness, the federal consumer financial protection agency said Wednesday.
The penalty against Edfinancial, a Knoxville, Tenn.-based company, according to the Consumer Financial Protection Bureau (CFPB), derived from its lying to borrowers about Federal Family Education Loan Program (FFELP) loans and borrowers’ eligibility for Public Service Loan Forgiveness (PSLF).
The FFELP program was ended in early January 2010 with the passage of the Health Care and Education Reconciliation Act; no loans were permitted to be made after June 30, 2010. The PSLF Program forgives the remaining balance on direct student loans after borrowers have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer, most typically a federal, state, local or tribal government, or a not-for-profit organization. U.S. military service also qualifies.
According to the CFPB, borrowers with FFELP loans, typically older federal student loans that borrowers took out from banks, must consolidate them into direct loans to be eligible for PSLF. Prior to the Department of Education’s limited PSLF waiver, the agency said, any payments made before consolidating a FFELP loan into a direct loan did not count toward PSLF.
However, under an October 2021 waiver issued by the Department of Education, any past payment on a federal student loan by a borrower working in public service can count toward PSLF, regardless of payment plan, loan type, or whether the payment was made in full or on-time. This includes payments on FFELP loans, according to the CFPB. To benefit under the waiver, many borrowers need to act by consolidating their loans, filing a PSLF application, or both, before the waiver ends on Oct. 31, 2022, the bureau said.
But Edfinancial, according to the CFPB, misrepresented that FFELP borrowers could not receive PSLF. “When borrowers with FFELP loans asked about PSLF, Edfinancial, in many instances, told them they were ineligible, and the company did not tell them they could become eligible by consolidating their loans into Direct Loans and meeting other qualifying requirements,” the agency wrote. “Sometimes, Edfinancial falsely told borrowers their FFELP loans could not be consolidated. These statements, misrepresentations, and omissions created the false impression for borrowers with FFELP loans that they could not obtain PSLF.”
The bureau also alleged that Edfinancial:
- Misrepresented that FFELP borrowers were making payments towards PSLF before loan consolidation.
- Misrepresented to borrowers that certain jobs were not eligible for PSLF.
- Described forgiveness programs to FFELP borrowers without mentioning PSLF.
In addition to the CMP, the agency said it also directed the firm to inform all affected borrowers of the limited PSLF waiver by reaching out to each borrower to provide an opportunity to take advantage of the Department of Education’s limited PSLF waiver before it ends on Oct. 31.