The Consumer Financial Protection Bureau (CFPB) recently sanctioned Edfinancial Services, a student-loan servicer, for making deceptive statements to student loan borrowers and misrepresenting their forgiveness and repayment options to them.
Edfinancial deceived borrowers, with Federal Family Education Loan Program (FFELP), loans about their eligibility for Public Service Loan Forgiveness (PSLF).
The Bureau is ordering the company to contact all affected borrowers, provide them with accurate information, and pay a $1 million civil money penalty.
“Edfinancial’s failure to tell the full truth to borrowers, so it could pad its bottom line highlights a systemic problem with loan servicing,” said CFPB Director Rohit Chopra. “When student loan companies lie about cancellation and repayment programs for borrowers, they are breaking the law.”
Edfinancial is a small, rapidly growing student-loan servicer headquartered in Knoxville, Tennessee. Edfinancial markets itself to borrowers and the public as providing expert help in navigating complex student-loan repayment options, and Edfinancial’s customer representatives regularly field questions about PSLF and other types of loan cancellation programs.
In 2008, President George W. Bush signed legislation that established the PSLF program. Student-loan borrowers who work in public-service jobs such as the armed forces or with a local, state, tribal, or federal government, as well as certain nonprofit organizations, may be eligible for PSLF. Borrowers with FFELP loans, typically older federal student loans that borrowers took out from banks, must consolidate them into Direct Loans to be eligible for PSLF. Prior to the Department of Education’s limited PSLF waiver, any payments made before consolidating a FFELP loan into a Direct Loan did not count toward PSLF.
The Department of Education’s limited PSLF waiver, announced in October 2021, extended benefits to FFELP borrowers. Under the waiver, any past payment on a federal student loan by a borrower working in public service can count toward PSLF, regardless of payment plan, loan type, or whether the payment was made in full or on-time. This includes payments on FFELP loans. To benefit under the waiver, many borrowers will need to act by consolidating their loans, filing a PSLF application, or both, before the waiver ends on October 31, 2022.
Last month, following supervisory findings that servicers have misled borrowers about their loans’ PSLF eligibility, the Bureau warned servicers not to misrepresent borrower eligibility or make deceptive statements about the PSLF program and the waiver. And today, the Department of Education released a letter to FFELP servicers raising concerns that deceptive practices regarding FFELP borrowers’ eligibility for PSLF might be widespread. The letter warns FFELP servicers of additional oversight on these issues and reminds them to ensure that they are actively informing borrowers of the availability of federal debt relief programs and any changes to those programs and responding to borrower inquiries with complete information.
“Public employees provide important services in communities across America,” said Federal Student Aid Chief Richard Cordray. “We are making it clear to all companies that service federal student loans that they are expected to provide these borrowers with accurate information about how to get the loan forgiveness they deserve.”
The Bureau found that Edfinancial violated the Consumer Financial Protection Act by engaging in deceptive acts and practices. Edfinancial encouraged borrowers to reach out to it for help managing their student loans, and it indicated that it was an expert and could assist borrowers navigating complex student-loan repayment options. FFELP borrowers reasonably relied on Edfinancial to act in their best interests by providing them with complete and accurate information about how to qualify for PSLF and about all the available forgiveness options. Specifically, the company harmed student loan borrowers by:
- Misrepresenting that FFELP borrowers could not receive PSLF: When borrowers with FFELP loans asked about PSLF, Edfinancial, in many instances, told them they were ineligible, and the company did not tell them they could become eligible by consolidating their loans into Direct Loans and meeting other qualifying requirements. Sometimes, Edfinancial falsely told borrowers their FFELP loans could not be consolidated. These statements, misrepresentations, and omissions created the false impression for borrowers with FFELP loans that they could not obtain PSLF.
- Misrepresenting that FFELP borrowers were making payments towards PSLF before loan consolidation: Edfinancial, in both explicit and implicit statements, told borrowers that their payments on FFELP loans would count toward the 10 years of monthly payments required to obtain PSLF. Many borrowers were likely led to believe they were making progress toward PSLF when they in fact were not because they had not consolidated their FFELP loans into Direct Loans.
- Misrepresenting to borrowers that certain jobs were not eligible for PSLF: In numerous instances, Edfinancial explicitly stated that certain jobs would not qualify for PSLF when they in fact did. In other instances, Edfinancial failed to include entire job categories, such as non-profit work, when discussing PSLF qualifying jobs. Edfinancial’s statements likely caused many eligible borrowers to not consider PSLF as a forgiveness possibility.
- Describing forgiveness programs to FFELP borrowers without mentioning PSLF: When FFELP borrowers asked about forgiveness options available to them, Edfinancial representatives often described forgiveness options available only for FFELP loans and failed to mention PSLF. The company’s statements and omissions created the impression that PSLF was not an option for many FFELP borrowers. FFELP borrowers may have elected not to pursue PSLF because they were either unaware of PSLF or did not think the program applied to them.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices. The CFPB’s order requires Edfinancial to:
- Inform all affected borrowers of the limited PSLF waiver: The Bureau is requiring Edfinancial to reach out to all its FFELP borrowers to provide them with an opportunity to take advantage of the Department of Education’s limited PSLF waiver before it ends on October 31, 2022.
- Pay a $1 million penalty: Edfinancial will pay a $1 million penalty to the Bureau, which will be deposited into the CFPB’s Civil Penalty Fund.