- The Consumer Financial Protection Bureau on Wednesday fined Edfinancial Services, a federal student loan servicer, $1 million, alleging the company deceived borrowers about participating in the Public Service Loan Forgiveness program.
- The watchdog agency said Edfinancial Services did not inform certain borrowers they could take advantage of PSLF, a federal program that can wipe away student debt of those who enter jobs like nursing or government work if they make a decade of qualifying payments. The company also allegedly told some borrowers incorrectly that they weren't eligible for PSLF or that they were making payments toward the program when they were not.
- The U.S. Department of Education on Wednesday said it had "no reason at all" to think these problems were exclusive to Edfinancial and that the case may reflect a longstanding approach other loan servicers used.
The CFPB's actions match federal agencies' newfound campaign to more closely regulate student loan products.
In January, the CFPB said it would examine business operations of colleges that directly offer students loans, citing a lack of oversight, high interest rates and unhealthy debt collection practices. And the Education Department has pushed forward on discharging loan debt of borrowers who the agency said were misled by institutions, mainly for-profits. A new department policy makes it easier for the agency to hold private colleges' owners financially responsible for students' debt needing to be forgiven in situations like an institution closing.
CFPB Director Rohit Chopra said in a statement Wednesday that Edfinancial's misrepresentation highlights a systemic problem within loan servicing.
"When student loan companies lie about cancellation and repayment programs for borrowers, they are breaking the law," Chopra said.
Edfinancial, based in Knoxville, Tennessee, acknowledged the CFPB's accusations.
However, in a statement, Edfinancial said it opted to settle the case rather than pursue "protracted and costly litigation that would have distracted us from our day-to-day responsibilities to our clients, borrowers and staff."
The company said it only represents 0.5% of FFEL loans in the U.S.
"Edfinancial's mission has always been to do the right thing for our customers," the statement said. "With this process now behind us, we can once again devote all our energy and resources toward our customers."
The company did not admit to or deny findings covered by a consent order in the case. It is one of the department's main loan servicers.
It is accused of misleading borrowers who took out Federal Family Education Loans, which were from private lenders but guaranteed by the federal government. FFEL loans were discontinued in 2010.
To be eligible for Public Service Loan Forgiveness, borrowers with these types of loans need to consolidate them into standard, government-issued ones.
But Edfinancial failed to tell some borrowers they needed to consolidate their loans. The borrowers then mistakenly thought they were making headway on the required 10 years of payments.
Edfinancial in other cases also told FFEL loan borrowers they were ineligible for Public Service Loan Forgiveness and failed to mention loan consolidation that would make them eligible, according to the CFPB. In some instances, the company falsely said that their loans could not be consolidated.
It also incorrectly told some borrowers their jobs would not allow them to qualify for PSLF, the CFPB said. Often when discussing loan forgiveness options, Edfinancial wouldn't mention PSLF at all.
Edfinancial must now contact all FFEL borrowers and inform them of a temporary department policy that expires at the end of October. It allows all borrowers in public service jobs, regardless of the type of loan they took out, to apply past payments to the decade of required ones.
The CFPB also fined the company $1 million, which will go toward a Civil Penalty Fund, which helps victims of consumer fraud.
The Education Department said Wednesday that Edfinancial's behavior spanned from at least January 2017 through at least February 2021.
The agency wanted to bring these issues to the attention of other FFEL servicers, Richard Cordray, chief operating officer of Federal Student Aid, said in a statement.
"Our goal is to ensure that these issues do not recur, anywhere, from here forward," Cordray said. "FSA and CFPB can be expected to pursue further oversight of these issues, and every company should take pains to address them at once, so as to avoid penalties or other consequences."
The Student Borrower Protection Center, an advocacy group, praised the agency's steps.
"Today, the CFPB held Edfinancial accountable for its abuses and sent a powerful signal to the entire student loan market: if you lie to your customers, you will face justice," its executive director, Mike Pierce, said in a statement.
This story has been updated with a statement from Edfinancial Services.