Pennsylvania Higher Education Assistance Agency (PHEAA), known to borrowers as FedLoan, announced Thursday it would not be renewing its contract with the Department of Education (DOE).
What We Know:
- FedLoan oversees the loans of 8.5 million student borrowers. More importantly, it is the sole provider that attends to loans for the Public Service Loan Forgiveness Program, which helps borrowers who work for a qualified public service or non-profit employer achieve loan cancellation. FedLoan’s contract is set to expire on December 14, and the company notified the DOE that it would not extend beyond what was needed for a smooth transition.
- The agency is just one of several companies the Department of Education contracts to manage the government’s $1.59 trillion student loan portfolio. Due to the pandemic, 23 million borrowers aren’t making loan payments because of a temporary pause due to end September 30. FedLoan’s decision to let its contract expire increases the pressure to extend this pause further.
- After months of stagnation, turning the system back on for borrowers was already predicted to put a strain on servicers. Persis Yu, staff attorney at the National Consumer Law Center and director of its Student Loan Borrower Assistance Project, stated, “That was already a really tall order, and to try to do that while simultaneously transferring borrowers from one servicer to the next just compounds the amount of things that can go wrong.” Consumer advocates and legislators have been calling for the payment pause to be extended due to this and the uneven economic recovery experienced throughout the nation.
- PHEAA initially entered its contract in 2009 with the DOE to further its mission to help students pay for college. Their decision to part ways with their federal contract comes with a desire to refocus its mission to Pennsylvania alone and the “increasingly complex and challenging” nature of the federal programs, and a cost increase in the service.
- Many are happy that PHEAA will no longer be a federal servicer under FedLoan. In fact, the company reached a settlement this year with the Massachusetts attorney general resolving claims of unfair and deceptive practices that deprived educators and public servants of relief promised under their Public Service Forgiveness program. The New York attorney general also sued them in 2019 for the same reasons and claimed they failed to deliver on the most basic tasks.
The Department of Education has given no indication of who will take over the 8.5 million accounts. The Biden administration is currently trying to help borrowers get loan cancellation under existing programs and creating a more transparent repayment system. It is unclear how FedLoan’s withdrawal might affect student loan forgiveness as a whole.