InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
New York expands access to PSLF program
On September 15, the New York governor signed S.8389-C/A. 9523-B , which amends the Public Service Loan Forgiveness (PSFL) program statewide. Among other things, the legislation: (i) adds clarifying legal definitions, such as “certifying employment,” “employee,” “full-time,” “public service employer,” “public service loan forgiveness form,” and “public service loan forgiveness program”; (ii) establishes a standard hourly threshold for full-time employment at thirty hours per week for the purposes of accessing PSLF; and (iii) permits public service employers to certify employment on behalf of individuals or groups of employees directly with the U.S. Department of Education. The legislation is effective immediately.
2nd Circuit upholds public service loan relief settlement
On September 7, the U.S. Court of Appeals for the Second Circuit affirmed a class action settlement reached between a student loan servicer and borrowers who claimed the servicer failed to inform them of a loan forgiveness program for public service employees. As previously covered by InfoBytes, the settlement required the servicer—who denied any allegations of wrongful conduct and damages—to put in place enhancements to identify borrowers who may qualify for Public Service Loan Forgiveness (PSLF) and “distribute comprehensive and accurate information about how to qualify, which are meaningful business practice enhancements.” The servicer was also required to fund a $2.25 million non-profit program to provide counseling to borrowers at all stages of the repayment process. The settlement also approved service awards for the named plaintiffs. In affirming the settlement, the appellate court rejected arguments raised by objectors who claimed, among other things, that the cy pres award would not benefit the class and “that the settlement improperly released monetary claims.”
“The cy pres award funds Public Service Promise and thereby assists all class members in navigating PSLF and determining whether they have a viable individual monetary claim against [the servicer],” the panel wrote, acknowledging that other circuit courts have recognized that class members can indirectly benefit from defendants paying appropriate third parties. “[T]he reforms will also benefit the remaining class members who, for example, are no longer with [the servicer] or who no longer have student loans, by providing them accurate information about the PSLF and helping them determine whether they have viable individual claims for damages,” the 2nd Circuit said.
States request extension of PSLF forgiveness waiver
On July 29, a coalition of state attorneys general sent a letter to President Biden and Department of Education Secretary Miguel Cardona, requesting the extension of the deadline for individuals to file claims under the Public Service Loan Forgiveness (PSLF) program. As previously covered by InfoBytes, in October 2021, the Department announced several significant changes to its PSLF program, including that approximately 22,000 borrowers with consolidated loans (including loans previously ineligible) may be immediately eligible to have their loans forgiven automatically, and another 27,000 borrowers could have their balances forgiven if they are able to certify additional periods of public service employment. According to the AGs, “it is critically important to extend the waiver at least until new PSLF regulations take effect and to grandfather in waiver benefits for borrowers who miss administrative deadlines.” The AGs also asked the Biden administration to count all forbearance periods toward loan forgiveness, rather than making exceptions for servicemembers and longer periods of forbearance for everyone else. The letter stated that “[f]ailure to automatically count periods of forbearance toward loan forgiveness ignores pervasive and well-established servicing problems and inappropriately shifts the burden to borrowers to identify and prove that they were victims of servicer misconduct.” The AGs urged the Biden administration “to exercise its authority to synchronize the One-Time Adjustment and Limited PSLF Waiver into a unified adjustment policy.” The letter specifically stated that the “simplest way of doing so may be to incorporate certain critical aspects of the waiver into the One-Time Adjustment, including that qualifying employment at the time of forgiveness is not necessary and that consolidations (whether of FFEL or Direct Loans) occurring prior to the completion of the One-Time Adjustment do not negate past qualifying employment periods for PSLF.”
NYDFS releases best practices for promoting PSLF program and time-limited waiver
On July 13, NYDFS called on all federal student loan servicers to increase awareness of and enroll borrowers in public service loan forgiveness programs before a temporary waiver expires on October 31. NYDFS’s letter reminded servicers that under the Public Service Loan Forgiveness (PSLF) program, full-time government and certain non-profit employees may be eligible to have federal direct loans forgiven after making 120 qualifying monthly payments. Last October, the Department of Education announced temporary PSLF changes due to the Covid-19 pandemic. These changes provided qualifying borrowers a time-limited PSLF waiver, which allows all payments to count towards PSLF regardless of loan program or payment plan (covered by InfoBytes here). Expressing concerns that many borrowers may not learn of this opportunity before it expires in October, NYDFS encouraged servicers to adopt eight best practices to promote awareness of the PSLF Program and the waiver. These include “enhanced trainings for customer service staff, proactive communications with borrowers, and increased promotion of the PSLF program on servicer websites and on borrower account pages,” NYDFS said in its announcement.
The letter follows a December 2021 NYDFS request sent to federal student loan servicers asking for updates on steps taken to address the waived rules. NYDFS also reminded servicers that it “will diligently enforce all servicer legal requirements concerning the PSLF program and will consider the extent to which servicers engaged in proactive measures to promote the PSLF Waiver in future supervisory examinations.”
CFPB settles with student loan servicer over unfair practices
On March 30, the CFPB announced a settlement with a student loan servicer to resolve allegations that the company engaged in deceptive acts with respect to borrowers with Federal Family Education Loan Program (FFELP) loans about their eligibility for Public Service Loan Forgiveness (PSLF), in violation of the Consumer Financial Protection Act, among other things. The CFPB alleged that the company engaged in unfair, deceptive, or abusive acts or practices by misrepresenting: (i) that FFELP borrowers could not receive PSLF; (ii) that FFELP borrowers were making payments towards PSLF before loan consolidation; and (iii) that certain jobs were not eligible for PSLF. The Bureau also alleged that the servicer “did not provide any information about how to become eligible for PSLF when borrowers inquired about the program or mentioned that they worked in a job that was likely a qualifying public-service job.”
Under the terms of the consent order, the servicer is required to: (i) notify all affected borrowers of the Department of Education’s limited PSLF waiver to provide affected consumers the opportunity to take advantage of the waiver before it ends on October 31; (ii) “develop and implement a call script for Customer Service Representatives that, at minimum, requires them to solicit information from all FFELP Consumers about whether a consumer’s employment may make them eligible for PSLF, and if so, to direct them to a Public Service Specialist, who will provide accurate and complete information about PSLF”; and (iii) pay a civil money penalty of $1 million to the Bureau.
According to a statement by CFPB Director Rohit Chopra, the Bureau “has long been concerned that others in the student loan servicing industry have derailed borrowers from making progress toward loan cancellation,” and “CFPB law enforcement work has identified these problems for years, finding failures at multiple servicers.”
CFPB scrutinizes student loan servicers’ PSLF compliance
On February 18, the CFPB released a compliance bulletin warning student loan servicers to make sure they provide complete and accurate information to eligible borrowers about Public Service Loan Forgiveness (PSLF) benefits. The Bureau indicated that it will be paying close attention to servicers’ compliance with Dodd-Frank’s prohibition on unfair, deceptive, or abusive acts or practices. Last October, the Department of Education changed its PSLF program to now provide qualifying borrowers with a time-limited PSLF waiver that allows all payments to count towards PSLF regardless of loan program or payment plan. The waiver covers payments made on loans under the Federal Family Education Loan Program or Perkins Loan Program. (Covered by InfoBytes here.) However, Bureau supervisory findings revealed unfair or deceptive practices taken by servicers that have prevented many borrowers from making progress towards forgiveness. The Bureau emphasized that it expects servicers to comply with federal consumer financial protection laws when administering the new PSLF waiver and providing assistance to borrowers. The Bureau “will pay particular attention” to whether (i) servicers of any federal loan type provide complete and accurate information about the PSLF waiver in communications related to PSLF or loan consolidation; (ii) servicers have adequate policies and procedures to recognize when borrowers express interest in PSLF or the PSLF waiver (or where borrowers’ files otherwise demonstrate their eligibility), in order to direct borrowers to appropriate resources; and (iii) servicers take measures “to promote the benefits of the PSLF Waiver to borrowers who express interest or whose files otherwise demonstrate their eligibility.” The Bureau advised servicers to consider enhancing their compliance management systems to ensure borrowers receive accurate and complete information about the PSLF waiver and that their enrollment is facilitated.
Education Dept. to expand PSLF program
On October 6, the Department of Education announced several significant changes to its Public Service Loan Forgiveness (PSLF) program that will be implemented over the next year. According to the Department, approximately 22,000 borrowers with consolidated loans (including loans previously ineligible) may be immediately eligible to have their loans forgiven automatically. Another 27,000 borrowers could have their balances forgiven if they are able to certify additional periods of public service employment.
The changes will now give qualifying borrowers a time-limited PSLF waiver, which will allow all payments to count towards PSLF regardless of loan program or payment plan. These include payments made on loans under the Federal Family Education Loan (FFEL) Program or Perkins Loan Program. Restrictions will also be waived on the type of repayment plan as well as the requirement that payments be made in the full amount and on-time in order to count. Additionally, the Department states that all months a servicemember spent on active duty will now count toward PSLF, even if a borrower’s loans were in deferment or forbearance and were not actively being repaid. A fact sheet states that the Department is also, among other things, reviewing previously disqualified loan payments for errors and providing borrowers the opportunity to have their PSLF determinations reconsidered. Counting prior payments on additional types of loans will also help borrowers who have or had loans from the FFEL Program, many of whom, the Department says, reported receiving inaccurate information from their servicers about how to make progress toward PSLF. The Department will also “start automatically adjusting payment counts for borrowers who have already consolidated their loans into the Direct Loan Program and certified some employment for PSLF.” Waiver requests must be submitted by October 31, 2022.
In addition to these changes, the Department says it has started its first session of negotiated rulemaking, which includes PSLF. Future changes “would make it easier for borrowers to make progress toward forgiveness, including simplifying qualifying payment rules and allowing certain types of deferments and forbearances to count toward PSLF,” the Department explains.
Senate Democrats press CFPB to investigate Pennsylvania servicer’s PSLF management
On October 28, 23 Senate Democrats wrote to CFPB Director Kathy Kraninger urging the Bureau to open an enforcement investigation into a Pennsylvania-based student loan servicer’s alleged mismanagement of the Public Service Loan Forgiveness (PSLF) program. The Senators contend that the servicer’s failure to properly administer the PSLF program “has resulted in widespread violations of federal law,” referring to reports by the CFPB, the Government Accountability Office, and the Department of Education Inspector General that claim that missteps and errors have caused public service workers to be denied loan forgiveness. The CFPB’s Student Loan Ombudsman’s report cites to the servicer’s “‘flawed payment processing, botched paperwork and inaccurate information,’” while the GAO report claims “that public service workers [have] improperly been denied loan forgiveness because of [the servicer’s] inability to properly account for qualifying payments and reliance on inaccurate information.” The letter requests that the Bureau investigate the servicer’s servicing practices, its management of the PSLF program, and other potential violations of federal consumer financial laws.
As previously covered by InfoBytes, on October 3, the New York attorney general filed an action against the servicer for violating the Consumer Financial Protection Act and New York law through its mishandling of income driven repayment plans and misconduct related to the administration of PSLF program applications.
Democratic Senators lay out expectations for new CFPB Private Education Loan Ombudsman
On October 10, the Senate Banking, Housing, and Urban Affairs Committee released a letter from Senators Sherrod Brown (D-Ohio) and Patty Murray (D-Wash) to the new CFPB Student Loan Ombudsman, Robert Cameron, outlining their expectations for his tenure in the Ombudsman’s Office. The senators state that Cameron should, among other things, (i) advocate for student loan borrowers by utilizing the Bureau’s statutory authority and tools, including policymaking and evidence gathering for supervision and enforcement; (ii) reestablish the information sharing Memorandum of Understanding (MOU) between the U.S. Department of Education and the Bureau; (iii) resume examinations of federal student loan servicers; and (iv) carry out his duties free of conflict of interests. The Senators request that Cameron provide additional information by October 25 regarding a potential conflict of interest (based on his prior work as Deputy Chief Counsel at a student loan servicer), the Bureau’s history of PSLF supervisory examinations, and current staffing in the Ombudsman Office.
Senate Democrats question the CFPB on PSLF oversight
On April 3, six Democratic Senators wrote to the CFPB seeking additional information on the Bureau’s oversight of student loan companies and servicers involved in the administration of the federal Public Service Loan Forgiveness Program (PSLF). In the letter, the Senators expressed concern that the Bureau’s leadership “has abandoned its supervision and enforcement activities related to federal student loan servicers.” The Senators noted that consumers owe more than $1.5 trillion in student loan debt in the U.S. and that loan servicing companies under contract with the U.S. Department of Education (the “Department”) are “covered persons” under Title X of the Dodd Frank Act, which allows the Bureau “broad oversight authority over their actions.” The Senators cited to a number of lawsuits brought by private citizens and state authorities challenging student loan servicing companies’ actions with regard to PSLF, and requested the Bureau respond to a series of questions regarding its activities overseeing student loan servicers’ handling of PSLF since December 2017. Among other things, the Senators requested information regarding (i) the Bureau’s examinations of student loan servicers’ PSLF administration; (ii) the effect of the Department’s December 2017 guidance to loan servicing contractors not to produce documents directly to other government agencies; (iii) the status of the CFPB’s alleged investigation into a specific student loan servicer’s actions; and (iv) the status of information sharing with the Department since August 2017.
Upcoming Events
- Jedd R. Bellman to provide an “Attorney exemption/medical debt update” at the North American Collection Agency Regulatory Association annual conference
- Kathryn L. Ryan to discuss “What should crypto regulation look like: Legislation, regulation and consumer issues” at WCL's First Annual Virtual Currency Law Institute
- Elizabeth E. McGinn to discuss “How to mitigate and manage third-party risks: Leveraging tools and best practices” at The Knowledge Group’s webcast
- Elizabeth E. McGinn, Benjamin W. Hutten, and James C. Chou to discuss “The evolving regulatory landscape: Third-party and cyber risk management” at the 2022 mWISE Conference
- Jeffrey P. Naimon to discuss “Truth in lending” at ABA’s Consumer Financial Services Basics 2022 virtual conference
- Sherry-Maria Safchuk to discuss “For your eyes only: Privacy updates for 2022-2023” at CCFL’s Annual Consumer Financial Services Conference
- James T. Parkinson to present a “Global anti-corruption update” at IBA’s annual conference