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Servicer Lawsuit Supports Federal Overreach and Seeks to Avoid Accountability

Friday, April 6, 2018
Lisa Stifler

PHEAA Should Drop the Lawsuit; DOE Should Respect State’s Rights to Address Historically Problematic Practices

WASHINGTON, D.C. – The Pennsylvania Higher Education Assistance Agency (PHEAA), one of the nation's largest student loan servicers, is suing the state of Connecticut in order to circumvent a 2015 law to protect student loan borrowers in the state from negligent and predatory servicing practices.

Last year, PHEAA was sued by the state of Massachusetts for allegedly overcharging student borrowers and failing to put them into the income-based repayment plans, mismanaging the certification process for the TEACH Grant program, and failing to properly credit student borrowers in public service jobs for monthly payments that should have gone toward loan forgiveness. PHEAA'S alleged mismanagement of the student loans they are servicing has led to thousands of borrowers finding they were not eligible for the loan relief they have earned.

Despite this, PHEAA has been given cover by the US Department of Education, who in November of 2017 instructed PHEAA not to comply with Connecticut law.

In response, Lisa Stifler, deputy director of state policy with the Center for Responsible Lending made the following statement:

Rather than simply allowing daylight to shine on their practices, this lawsuit shows PHEAA is taking extraordinary steps to cover their tracks. Of course, PHEAA would want to avoid the watchful eye of state regulators, who have the interest, the right, and the need to protect their citizens and their state’s economy from abusive student loan servicing. But what is different in this case is the apparent assist the Department of Education has given to poorly performing servicers, helping them to avoid state scrutiny while doing little to protect borrowers. The Department should back off of their federal overreach and let state regulators do their job and make sure the servicers operating in their states are accountable and responsible.

We applaud the state of Connecticut for enacting one of the strongest student loan servicing laws in the county, paving the way for others to do so since. States should and must continue taking action to ensure their students are treated fairly while repaying their loans.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Carol Hammerstein at carol.hammerstein@responsiblelending.org.