Consumer Agency Blocked From Fixing Student Loan Forgiveness Program

Many public service workers thought they were in line to have their student loans forgiven. They made payments for 10 years only to be told they weren't in the right loan forgiveness program.

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We have news now about a student loan forgiveness program that is troubled. NPR has learned the Trump administration blocked a consumer protection agency from trying to fix it. The program is meant to help public service workers and those who work for nonprofits, but thousands say they were unfairly rejected. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: Wendy Feliciano works for the police department in New York City.

WENDY FELICIANO: I am a sergeant in the NYPD, and I work in the Bronx - in the Bronx borough.

ARNOLD: And back in 2007, Feliciano heard about the start of the Public Service Loan Forgiveness Program. It promises that after you make payments for 10 years, your remaining student loan debt will be forgiven, which sounded great. She says she owed about $40,000, so she called up the number on her student loan statement, talked to a call center worker.

FELICIANO: It was just, OK, you just enrolled in the program. That was it. You qualify for the program.

ARNOLD: You mean just over the phone, they just told you that?

FELICIANO: Yes, mmm hmm, yes. It was nothing like, you need to do this, you need to that or anything like that.

ARNOLD: Feliciano says she was told to just keep making her payments for 10 years and she'd be good. So she did that. But a decade later, she was told that she didn't qualify because she'd been in the wrong type of repayment plan, so none of those payments counted.

FELICIANO: I was really angry and really frustrated. I told everybody this is a complete scam.

ARNOLD: And a lot of people feel that way. More than one million have filed paperwork to take part of the program. But by the Education Department's own numbers, only 1% of people applying for loan forgiveness are being approved. The other 99% - many thousands of people - are getting rejected like Feliciano. Multiple lawsuits have been filed. A government watchdog office has issued scathing reports.

And now NPR has learned that the nation's most powerful consumer protection agency launched an effort to fix problems, but the Trump administration blocked it from trying to help.

CHRISTOPHER PETERSON: That's terrible.

ARNOLD: Christopher Peterson is a former top attorney at the Consumer Financial Protection Bureau.

PETERSON: There are hundreds of thousands of people who are counting on the government to get this right for their livelihood and their well-being for their families.

ARNOLD: And back in early 2018, with complaints rising, the bureau geared up to try to help those people. Several sources tell NPR that the bureau sent teams of examiners into the servicing companies that run those student loan call centers. Such examinations typically go on for months, with the team embedded at the company.

But the Trump administration's Education Department told loan servicing companies not to share information with the bureau about the vast majority of student loan borrowers. It cited, quote, "privacy concerns." Sources tell NPR that the lack of cooperation scuttled the bureau's efforts to help. Again, Christopher Peterson.

PETERSON: It's 100% clear that the public service Student Loan Forgiveness Program is badly broken. It needs to be fixed. And we have teams of seasoned, trained accountants and lawyers whose job and expertise is fixing exactly that type of thing. But instead of sending them in, we're just leaving them on the sidelines and the problem's not getting solved.

ARNOLD: Peterson says the bureau could go to court to force the issue to get the information it needs. But with a new director at the bureau appointed by the Trump administration...

PETERSON: The leadership of the CFPB has chosen not to pick that fight.

ARNOLD: For its part, the Education Department basically says it's not the Consumer Protection Bureau's job to police federal student loans, even though that's the vast majority of student loans that are out there. The department says the CFPB should stick to the much smaller world of private student loans.

State prosecutors and outside experts like Peterson disagree. They say the Education Department is failing to properly oversee all those federal loans by itself.

SCOTT BUCHANAN: The challenge for a servicer is that we're stuck in the middle.

ARNOLD: Scott Buchanan heads up the Student Loan Servicing Alliance. He says the loan servicing companies that he represents have a tough job working with millions of student loan borrowers.

BUCHANAN: I mean, it's really complicated. And so I have no doubt that servicers from time to time do make some mistakes and when those get identified that we work to fix them.

ARNOLD: Buchanan says it would be best for everybody if the Consumer Protection Bureau and the Department of Ed could work together so servicing companies weren't getting conflicting messages. The CFPB declined an interview but said in a statement that it will continue to, quote, "take action against those who fail to comply with the law." The Education Department tells NPR it is working with the bureau to resolve at least some of these issues. Meanwhile, this turf war is blocking the bureau from doing much to help.

Chris Arnold, NPR News.

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