Statement from CFPB Director Chopra on Edfinancial and Public Service Student Loan Cancellation
Today, the Consumer Financial Protection Bureau (CFPB) sanctioned Edfinancial for misleading student borrowers about their eligibility for public service loan forgiveness and the steps they could have taken to obtain forgiveness of the loan.
In 2008, President George W. Bush signed legislation that established the Public Service Loan Forgiveness Program (PSLF), and he promises forgiveness for borrowers with direct loans, which belong to the Department of Lending. ‘Education. At the time, many student borrowers also had federal loans issued or held by banks and other private investors through the Federal Family Education Loan Program (FFELP). Borrowers with these bank loans could swap their loans for direct loans, through a process called “consolidation”, in order to become eligible for cancellation under the PSLF.
The program was discontinued in 2010,1 and new loans have not been granted since then. However, millions of borrowers continue to make repayments on loans taken out before the program ended, many of which are now decades old.
Edfinancial made a series of misleading statements to borrowers regarding the cancellation of utility loans, including falsely telling borrowers with FFELP loans that they could not qualify for the program. Edfinancial’s deceptive practices violate financial consumer protection law. The CFPB order requires Edfinancial to contact each of its FFELP borrowers to remedy its misrepresentations and help them consolidate into direct loans if they wish. The US Department of Education recently announced means that borrowers who consolidate now will receive credit for payments made on their FFELP loans.
Edfinancial is not a massive service, but its deceptive practices can have a massive impact on an individual borrower’s financial future. The CFPB has long been concerned that other players in the student loan servicing industry have blocked borrowers from making progress towards loan forgiveness.2 The CFPB’s enforcement work has identified these issues for years, finding failures in several repairers. And the PSLF isn’t the only program vulnerable to illegal repairer behavior: Additional programs such as teacher loan forgiveness and income-contingent repayment also promise cancellation under applicable law.
Millions of borrowers are paying excessive fees and interest, or extra payments on amounts that should have been canceled through existing cancellation programs, due to misaligned incentives by student loan servicers and bureaucracy. For too long we have asked millions of student borrowers to bear the brunt of this broken system. This must stop.
2. Many repairers handle both direct and FFELP loans, which suggests that a lack of knowledge about federal benefit programs isn’t the problem. However, facilitating the consolidation of loans from FFELP borrowers to Direct may mean that a manager will lose revenue associated with the consolidated loan.