Congress created the program in 2007, and the first wave of applicants will be eligible to have their remaining student debt eliminated in October.
To qualify for the forgiveness program, workers must make 120 monthly payments on their federal student loans through one of several designated payment plans. When they finish, any remaining balance will be forgiven.
Because the program is not yet a decade old, no borrowers’ debts have yet been wiped away, but the government encourages those who plan to use it to submit certification forms that help track their progress.
So far, the process has been a mess, according to the lawsuit Ms. Healey filed in the Massachusetts Superior Court in Suffolk.
Every year, borrowers using an income-based plan must recertify and document their earnings. The Pennsylvania Higher Education Assistance Agency, which guides borrowers through the complex process and collects their monthly payments, is unreasonably slow in processing those applications, according to the lawsuit.
To accommodate its delays, the company puts many borrowers into forbearance, which suspends their monthly payments. But months in which loans are in forbearance do not count toward the 120 payments borrowers must make, which puts many borrowers further behind than they expected, Ms. Healey said.
The company’s mistakes go beyond slow processing, according to the Massachusetts complaint. A technical error affecting about 1 percent of its accounts led to overcharges for tens of thousands of borrowers, the complaint said.
“Despite being aware of its billing system logic error for nearly a year, P.H.E.A.A. has failed to refund the overcharges, or even to notify borrowers of the overcharges,” the attorney general’s office wrote in its filing. It said the company “has wrongfully held borrowers’ money that it was not entitled to collect.”
Keith New, a spokesman for the Pennsylvania Higher Education Assistance Agency, said the company “does not agree with the allegations” made in the complaint.
“P.H.E.A.A. remains committed to appropriately resolving any outstanding borrower issues,” he said. “P.H.E.A.A. will continue working with the U.S. Department of Education’s Office of Federal Student Aid to help resolve any issue identified by the Massachusetts attorney general.”
A government watchdog, the Consumer Financial Protection Bureau, also raised the issue of servicer delays and errors in a scathing report in June on extensive problems in the public service loan forgiveness program.
“Borrowers complain that when their servicer reports a qualified payment count that borrowers believe to be inaccurate, borrowers struggle to get their servicer to correct the error or explain why payments were not qualified,” the consumer bureau wrote.
About 612,000 people have signed up so far in the loan forgiveness program and submitted at least one approved certification, according to Education Department data. Many of those people, though, are concerned about how many of their monthly payments will be counted — or even if the certification itself will be revoked.
In legal filings this year, the Education Department said that the approval notices that the company sends to borrowers seeking certification are not binding and can be rescinded by the department at any time. Four borrowers whose approvals were withdrawn — they were granted in error, the Education Department said — are in continuing litigation with the department.
Karen Bauer, a lawyer with the nonprofit Legal Aid Society of Milwaukee, said she had been fighting for months to get the Pennsylvania Higher Education Assistance Agency to correct problems in the way her monthly payments were tallied. When she sent in a certification covering five years of work and monthly payments — about 60 of them, by her calculation — only half were counted.
“I contacted P.H.E.A.A. about the problem, and they dragged their feet about correcting it,” Ms. Bauer said. After she complained to government regulators, including the consumer bureau and the Education Department’s ombudsman, the servicer corrected its count and restored most of her payments, but one is still in dispute, she said.
The Massachusetts attorney general’s complaint accuses the Pennsylvania Higher Education Assistance Agency of violating Massachusetts laws that prohibit “unfair or deceptive acts.” It asks the court to levy penalties and award restitution to affected borrowers.
Continue reading the main story