Controversial student loan manager fails to renew contract

  • PHEAA, a major manager of student loans, will close in December.
  • Elizabeth Warren has long criticized the company for failing to provide debt relief to borrowers.
  • The company administers the PSLF, which refuses 98% of public service employees who ask for debt relief.
  • See more stories on the Insider business page.

Company that handles 8.5 million U.S. student loans shut down after lawmakers like Senator Elizabeth Warren accused her of misleading borrowers, lying to Congress, and failing to properly grant the loan cancellation of the loan.

The Pennsylvania Higher Education Assistance Agency (PHEAA) informed the Department of Education on Thursday that it would not extend its 12-year federal contract beyond December 14, Politico first reported.

“In the 12 years since PHEAA accepted the terms of its federal service contract, federal loan programs, as administered by the US Department of Education, have become increasingly complex and difficult, while the cost of servicing these programs has increased dramatically, ”said Keith New, PHEAA’s director of media and public relations, said in a statement.

He added that PHEAA would continue to grow its student loan and software as a service business.

Borrowers who have requested forgiveness in exchange for years of working as a teacher, in a non-profit organization, or in other public service employment might know the PHEAA for its administration of the loan forgiveness program. of public service (PSLF). The program cancels public servant student debt after 120 qualifying monthly payments, and it has a 98% denial rate.

“Millions of borrowers can breathe a sigh of relief today knowing that their loans will no longer be managed by PHEAA, an organization that has robbed countless debt relief officials and was recently caught in lying to Congress about its excruciating fines and penalties record, ”Warren said in a statement.

She was referring to an April hearing in which Warren and John Kennedy, a senior member of the Senate Economic Policy Subcommittee, called on CEOs of all student loan departments across the country to testify to the influence of student debt on borrowers. PHEAA CEO James Steely said the company had never been penalized for mismanagement of the PSLF.

But two weeks ago, Warren and Kennedy sent a letter to Steeley regarding “what appear to be false and misleading statements” and cited nine Department of Education opinions in their letter suggesting that the mismanagement of the program by the company had resulted in corrective action plans and two fines. , each over $ 100,000.

“It is not known how or why you provided information which appears to be inaccurate,” wrote Warren and Kennedy.

She added that the PHEAA should be responsible for a “swift and orderly transition” of borrowers to a new service. The Department of Education has yet to comment on how this will affect borrowers under the PHEAA.

The company’s upcoming shutdown could suggest other hurdles the Education Department would face if it decided to restart student loan payments in October. Warren warned the department last month of the “catastrophic” effect the restart of payments could have if the services did not properly prepare borrowers, and then asked that the payment break be extended until the year. next.

And she delayed the confirmation of a candidate from the Department of Education to push for better administration of student loan services.

The Biden administration has started the process of implementing the reforms for the PSLF, but it could take more than a year for the improvements to take effect, and Democrats want Biden to act faster to give borrowers relief that they need.

A group of Democrats wrote last week: “As part of the upcoming negotiated rule-making process, we encourage the ministry to pursue policies that reduce disparities in student debt burdens, simplify loan repayments, fill gaps in forgiveness programs and improve borrower confidence in the federal student loan system.

Do you have a story on student debt cancellation? Contact Ayelet Sheffey at [email protected]

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