The Consumer Financial Protection Bureau is fining Edfinancial Services, a student-loan servicer, $1 million for making deceptive statements to student loan borrowers and misrepresenting forgiveness and repayment options to them. The company deceived borrowers with Federal Family Education Loan Program loans about their eligibility for Public Service Loan Forgiveness, the bureau said.
Headquartered in Knoxville, Tenn., Edfinancial markets itself as an expert source in navigating complex student-loan repayment options, and its customer representatives regularly field questions about PSLF and other types of loan cancellation programs, according to the bureau’s complaint.
The CFPB accused Edfinancial of violating the Consumer Financial Protection Act by engaging in deceptive acts and practices. It misrepresented that FFELP borrowers could not participate in the PSLF program, that FFELP borrowers were making PSLF-qualifying payments when they were not, and that certain jobs were not eligible for PSLF. The company also omitted PSLF when describing forgiveness programs for FFELP borrowers, the bureau said.
“Edfinancial is not a massive servicer, but its deceptive practices can have a massive impact on an individual borrower’s financial future,” said CFPB Director Rohit Chopra. “When student loan companies lie about cancellation and repayment programs for borrowers, they are breaking the law.”
The PSLF program, which promises loan cancellation for borrowers who make 120 payments while holding public service jobs, had an unusually high rejection rate for applicants. One estimate from the Department of Education put the number of those eligible for forgiveness at more than 1 million borrowers, but a 2019 report found only 1 percent of applicants were approved for debt cancellation.
That 2019 report prompted criticism of the Education Department’s handling of the program, and the CFPB was sued by a consumer group as well. A group of Democratic senators called for a CFPB investigation into one of the PSLF servicers which later stopped servicing federal student loans. The Education Department and CFPB signed an agreement in 2020 promising better cooperation on PSLF, and last year the Department temporarily expanded eligibility for the program, including FFELP loans.
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 waiver, any payments made before consolidating a FFELP loan into a Direct Loan did not count toward PSLF. The Education Department last week released a letter to FFELP servicers raising concerns that deceptive practices regarding FFELP borrowers’ eligibility for PSLF might be widespread.
The bureau earlier this year issued a bulletin recommending actions servicers should consider taking to ensure they do not misrepresent borrower eligibility or make deceptive statements to borrowers about PSLF forgiveness.
“Millions of borrowers are paying excess fees and interest charges, or extra payments on amounts that should have been canceled through existing cancellation programs, because of misaligned incentives by student loan servicers and bureaucratic red tape,” Chopra said. “For too long, we have asked millions of student loan borrowers to bear the brunt of this broken system. That must end.”