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Audit blasts failures in student loan servicers

Deb Erdley
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A new audit by the U.S. Department of Education’s in-house watchdog blasts the agency for failing to ensure oustside contractors entrusted with overseeing the payment of more than $1 trillion in student debt are serving millions of Americans struggling to pay their federal student loans.

NPR reported that an audit by the Department’s Inspector General found that between 2015 and 2017 the agency not only failed to oversee contractors, but that it rarely penalized those who failed to follow the rules and gave borrowers bad information.

The Pennsylvania Higher Education Assistance Agency — or PHEAA, the state agency that oversees payments on more than $300 billion in student debt for the department — was among the contractors singled for miscalculating payments and placing borrowers into pricey payment plans without informing them of other options.

“The audit documents several common failures by the servicers, among them, not telling borrowers about all of their repayment options, or miscalculating what borrowers should have to pay through an income-driven repayment plan. According to the review, two loan servicing companies, Navient and The Pennsylvania Higher Education Assistance Agency (PHEAA), better known as FedLoan, repeatedly placed borrowers into costly forbearance without offering them other, more beneficial options,” NPR reported.

Some of the findings in the new audit touched on problems the Tribune-Review reported last year when student borrowers turned to federal courts to sort out allegations that PHEAA’s FedLoan Servicing unit repeatedly erred in placing borrowers into forbearance, adding thousands of dollars in interest to outstanding debts . Borrowers filed 10 class-action lawsuits across the nation, which were consolidated into a single case against the agency. The case pending in U.S. District Court in Philadelphia.

PHEAA spokesman Keith New took issue with the new audit’s findings.

“We welcome this type of analysis because it provides an opportunity to explore the root cause of possible issues, which leads to better outcomes for all borrowers. But the report seems to lack insight into the composition of each portfolio that is being compared,” New wrote.

He said the auditors reviewed a disproportionate number of PHEAA calls and overlooked PHEAA’s performance promoting the benefits of income-driven repayment plans.

He said a multi-million dollar package of technology and process upgrades launched in 2017 allow PHEAA to provide a “white-glove level of assistance regardless of the complicating circumstance.”

The state agency, that is governed by an oversight board dominated by state lawmakers, was chartered as a loan guarantee agency to backstop student loans in the 1960s. PHEAA’s operations changed dramatically in 2009 when the U.S. Department of Education began originating all federal loans in house and hiring agencies like PHEAA to oversee loan payments.

PHEAA now taps millions of dollars profits from its student loan servicing contracts with the federal government to underwrite grants to Pennsylvania college students.

Deb Erdley is a Tribune-Review staff writer. You can contact Deb at 724-850-1209, [email protected] or via Twitter @deberdley_trib.