July 25, 2021

Loan Servicers Mislead Borrowers Seeking Debt Forgiveness

Loan Servicers Mislead Borrowers Seeking Debt Forgiveness


  • The Consumer Financial Protection Bureau found student-loan servicers regularly mislead borrowers.
  • Deceptive practices include misrepresenting eligibility for the Public Service Loan Forgiveness program.
  • Biden campaigned on fixing the program, but it is still rejecting 98% of borrowers. 
  • See more stories on Insider’s business page.

President Joe Biden’s Education Department has begun the process of reforming the student-loan system. But new findings from an agency within his administration stressed the dire need to implement reforms.

The Consumer Financial Protection Bureau (CFPB), which ensures consumers are treated fairly, released a report on Tuesday that found loan servicers have misled borrowers under the Federal Family Education Loan Program (FFELP) who had tried to enroll in the Public Service Loan Forgiveness (PSLF) program.

FFELP ended in 2010, but according to Education Department data, 11.2 million borrowers under that program still have outstanding loans totaling over $248 billion.

Also, PSLF allows public-services workers to receive loan forgiveness after 120 qualifying monthly payments, but the program has ongoing flaws, and CFPB found “servicers regularly provided inaccurate information about eligibility for PSLF or Direct Consolidation Loans, resulting in deceptive acts or practices” that hindered borrowers’ abilities to receive debt forgiveness.

According to the agency, deceptive practices include leading borrowers to submit employer certification paperwork before consolidating their loans, even though PSLF guidelines indicate rejecting exactly those kinds of submissions. They also advised FFELP borrowers that their loans were ineligible for PSLF, but those borrowers would be eligible if they consolidated their loans.

Other misleading practices the CFPB found included:

  • Misrepresenting employer eligibility requirements for the program;
  • Failing to reverse the consequences of automatically enrolling in natural disaster forbearance;
  • And implementing inaccurate monthly payments for borrowers after transferring to new servicers.

The Student Borrower Protection Center Executive Director Seth Frotman said in a statement that the CFPB’s findings “confirm that the student loan industry has been engaged in a widespread, illegal scheme to cheat public servants out of the loan forgiveness earned through their service to our country and in our communities.”

Biden campaigned on reforming PSLF, but Insider reported that Education Department data show 98% of borrowers are still being rejected from the program since he took office. 

With regard to borrowers under FFELP, Education Secretary Miguel Cardona announced in March that he was expanding the pause on federal student loan interest and collections on all defaulted loans to FFELP borrowers whose loans were held by private lenders, impacting about 1.14 million borrowers.

But the agency’s findings stressed the need to provide further relief to borrowers and fix the flawed student-loan system.

The Student Borrower Protection Center wrote on Twitter: “Today’s action from @CFPB leaves no doubt: @SecCardona must use the expansive powers already at his disposal to provide teachers, nurses, and other public service workers across the country the forgiveness they were promised.”





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