The allegations are rooted in the student loan officer’s interactions with borrowers holding debt from a former bank-based federal loan program known as the Federal Family Education Loan (FFEL). People with these loans must consolidate them to take advantage of the rebate program, but the CFPB said EdFinancial did not notify borrowers of this step. Instead, many were led to believe there was no way to qualify, according to the consent order in the matter.
Other borrowers with FFEL loans would have been told their payments counted towards the forgiveness program, although they never consolidated. The CFPB also accused EdFinancial of falsely telling borrowers that certain jobs were not eligible for the PSLF, when in fact they were. Investigators say company representatives also failed to mention the program when people asked about forgiveness options. The bureau found evidence of misleading information from at least January 2017 through at least February.
EdFinancial said the company agreed to the consent order to focus all of its energy on helping customers, not fighting litigation.
“Faced with lengthy and costly litigation that would have distracted us from our day-to-day responsibilities to our customers, borrowers and staff, we have settled the case,” EdFinancial said in a statement. “The FFELP loans we manage represent a tiny fraction – half a percent – of the total FFELP loans in the country.”
The watchdog has in the past accused student loan servicers of cutting corners to save time and money at the expense of borrowers. The federal agency also questioned whether service officers are reluctant to share information about the public service program, as it could lead to the loss of an account if a borrower is transferred to a competitor servicing loans under from the program.
“EdFinancial’s failure to tell borrowers the full truth, so it can inflate its results, highlights a systemic problem with loan servicing,” CFPB Director Rohit Chopra said Wednesday. “When student loan companies lie about forgiveness and repayment programs for borrowers, they’re breaking the law.”
In addition to the fine EdFinancial must pay to the CFPB, the company must inform its FFEL borrowers of a temporary extension to the public service loan cancellation program that could bring them closer to debt cancellation.
In October, the Department of Education said it would temporarily allow all payments made by eligible public servants on federal student loans, including FFEL debt, to count toward the forgiveness program. The decision allows officials to circumvent the program’s rigid rules to receive debt relief, but only until October 31.
Normally, participants must have loans made directly by the federal government and be enrolled in specific repayment plans, primarily those that cap monthly loan payments at a percentage of their income. They must also work for the government or some non-profit organizations.
Missteps can add years to the process, and borrowers have complained that bad advice from loan officers led them to believe they were making eligible payments when they weren’t.
Given this history, the CFPB has kept an eye on maintenance practices. Last year, the bureau’s examiners reported cases of student loan managers providing inaccurate information about the public service program. And in February, the CFPB warned repairers to be vigilant about the information they provide about the program and the waiver.
For its part, the Ministry of Education sent a letter on Wednesday to managers handling former bank loans warning them to address any misinformation provided about the forgiveness program to avoid consequences for EdFinancial. The ministry said it suspected the alleged inaccuracies were widespread.
“Public employees provide important services in communities across America,” said Richard Cordray, who heads the Education Department’s office of federal student aid, on Wednesday. “We make it clear to all companies that service federal student loans that they are expected to provide these borrowers with accurate information on how to get the loan forgiveness they deserve.”