- PHEAA, a major student-loan servicer, is shutting down in December.
- Elizabeth Warren has long criticized the company for failing to provide debt relief to borrowers.
- The company administers PSLF, which denies 98% of public-service workers who seek debt forgiveness.
- See more stories on Insider’s business page.
A company that handles 8.5 million Americans’ student loans is shutting down its services after lawmakers like Sen. Elizabeth Warren accused it of misleading borrowers, lying to Congress, and failing to properly issue loan forgiveness.
The Pennsylvania Higher Education Assistance Agency (PHEAA) notified the Education Department on Thursday that it would not extend its 12-year-old federal contract beyond December 14, Politico first reported.
“In the 12 years since PHEAA accepted the terms of its federal servicing contract, the federal loan programs, as managed by the U.S. Department of Education, have grown increasingly complex and challenging while the cost to service those programs increased dramatically,” Keith New, PHEAA’s media and public-relations director, said in a statement.
He added that PHEAA would continue to expand its student lending and software-as-a-service business.
Borrowers who have applied for forgiveness in exchange for years of working as a teacher, in a nonprofit, or in other public-interest jobs might know PHEAA for its administration of the Public Service Loan Forgiveness (PSLF) program. The program forgives student debt for public servants after 120 monthly qualifying payments, and it has a 98% denial rate.
“Millions of loan borrowers can breathe a sigh of relief today knowing that their loans will no longer be managed by PHEAA, an organization that has robbed untold numbers of public servants of debt relief and was recently caught lying to Congress about its atrocious record of fines and penalties,” Warren said in a statement.
She was referring to an April hearing in which Warren and John Kennedy, the ranking member of the Senate economic-policy subcommittee, asked CEOs of all the student-loan servicers in the country to testify on the influence of student debt on borrowers. PHEAA CEO James Steely said the company had never been penalized for mismanagement of PSLF.
But two weeks ago, Warren and Kennedy sent a letter to Steeley regarding “what appear to be false and misleading” statements and cited nine Education Department reviews in their letter that suggested the company’s mismanagement of the program had resulted in corrective action plans and two fines, each more than $100,000.
“It is not clear how or why you provided information that appears to be inaccurate,” Warren and Kennedy wrote.
She added that PHEAA should be responsible for a “swift and orderly transition” for borrowers to a new servicer. The Education Department has not yet commented on how this will affect borrowers under PHEAA.
The company’s upcoming closure could suggest further hurdles the Education Department would encounter should it choose to restart payments on student loans in October. Warren warned the department last month of the “disastrous” effect restarting payments could have if servicers did not properly prepare borrowers, and she later requested that the payment pause be extended through next year.
And she held up the confirmation of an Education Department nominee to push for better administration of student-loan servicers.
The Biden administration has begun the process of implementing reforms for PSLF, but it could take over a year for improvements to go into effect, and Democrats want Biden to act quicker to give borrowers needed relief.
A group of Democrats wrote last week: “As part of the upcoming negotiated rulemaking process, we encourage the Department to pursue policies that reduce disparities in the burden of student debt, simplify loan repayment, close donut holes in forgiveness programs, and improve the overall confidence of borrowers in the federal student loan system.”