Fed Loan Accused of Mismanaging Student Loan Debt Forgiveness Programs

The NY Times Dealbook today reports that the Massachusetts attorney general has sued the Pennsylvania Higher Education Assistance Agency, which operates under the name FedLoan, for making made errors in connection with the student loan forgiveness programs.

The company, which is based in Harrisburg, Pa., holds an exclusive contract with the federal Department of Education to service loans enrolled in the public service loan forgiveness program and the Teacher Education Assistance for College and Higher Education Grant program, or TEACH, which offers assistance to those who teach in high-need areas.

Congress created the program in 2007, and the first wave of applicants will be eligible to have their remaining student debt eliminated in October.

To qualify for the forgiveness program, workers must make 120 monthly payments on their federal student loans through one of several designated payment plans. When they finish, any remaining balance will be forgiven.  Because the program is not yet a decade old, no borrowers’ debts have yet been wiped away, but the government encourages those who plan to use it to submit certification forms that help track their progress.

So far, the process has been a mess, according to the lawsuit filed by the Massachusetts AG in the Massachusetts Superior Court in Suffolk.

Every year, borrowers using an income-based plan must recertify and document their earnings.  FedLoan is supposed to guide students through the complex process but is unreasonably slow in processing those applications, according to the lawsuit.  To accommodate its delays, FedLoan puts borrowers into forbearance, which suspends their monthly payments. But months in which loans are in forbearance do not count toward the 120 payments borrowers must make to have their loans forgiven. The complaint also alleges FedLoan overcharged some borrowers.


  • 1736 Stockton Street
    Ground Floor
    San Fransisco, CA 94133
  • (415) 651-1951