NY Sues Student Loan Servicer Over Program Management

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NEW YORK — New York’s attorney general filed a lawsuit Thursday against a loan servicer that handles a student loan forgiveness program for public service workers over how the program has been managed.

Attorney General Letitia James’ suit filed in federal court in Manhattan against the Pennsylvania Higher Education Assistance Agency said it has “failed miserably” in how it administers the program.

In her lawsuit, James said PHEAA, which operates under FedLoan Servicing, hasn’t accurately kept track of borrowers’ payments or adequately explained how it makes its tracking determinations.

FedLoan is the only loan servicer for the Public Service Loan Forgiveness program, created by the federal government in 2007. That program allows certain borrowers to ask for loan forgiveness after 10 years, provided they have made the right amount of qualifying payments and are working in public service jobs.

By not administering the program effectively, James said in her suit against PHEAA that the effects on borrowers include longer repayment periods and being denied when they apply for loan forgiveness.

“PHEAA’s failures as the PSLF servicer,” James said, “have undermined the goals of the PSLF program and created financial hardship for many.”

Keith New, a spokesman for the loan servicer, said in an email statement, “Over the years, PHEAA has cooperatively worked with the NY AG’s Office, along with many other regulators throughout the nation, to review specific borrower concerns and to identify and implement appropriate resolutions as they arise.”

He said James’ allegations are “without merit” and PHEAA “intends to vigorously defend itself in this suit.”

PHEAA is facing other lawsuits, one filed by Massachusetts in state court, as well as some class-action lawsuits.


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