The little-known student loan middlemen who -2-
The Foundation for Educational Funding also used about $800,000 to launch centers in the state that provided students with information about colleges, scholarships and financial aid. Only the for-profit company affiliated with the nonprofit was allowed to advertise in those centers, according to Consumers Union.
The goal of the benefits the federal government provided these state-related entities over the first several decades of the student loan program — like assuming almost all of the risk for guaranty agencies and offering secondary market operators special subsidies — was to encourage them to participate in the program and ensure that enough capital was available for students to continue to borrow to attend college.
But during the financial crisis, investors became skittish about providing capital to private lenders in the student-loan system, despite the federal guarantee. To ensure students would be able to access loans to pay for college, the government essentially bailed these and other entities that owned federal student loans out — the feds bought up some of some of the loans held by private lenders so they’d have the capital to make new ones.
“At that moment when students needed the money the most — their parents couldn’t get home equity loans — the system froze,” Bergeron said. “That, for me, was the biggest failure,” of the bank-based student loan system, he added.
When, about a year later, the Obama administration sought to end the bank-based student-loan system and have new federal student loans be made exclusively by the government directly to students, state-affiliated as well as nonprofit guaranty agencies and secondary market operators. fought the transition, lobbying their members of Congress to keep the bank-based loan system in place.
When that didn’t work, “they demanded a piece of the contracts that came afterwards,” Shireman said. During that period, when he served as Deputy Undersecretary of Education, Shireman visited MOHELA’s headquarters near St. Louis, where leadership and state lawmakers were concerned about how the transition to direct lending would impact jobs in the state.
Although there would be no new bank-based loans for these organizations to originate or guarantee they received a vow from Congress that at least some would be able to participate in the direct lending program as servicers, or the organizations that manage student loan payments on behalf of the federal government.
Borrowers face long wait times
Now, that servicing income is part of what’s at issue in the six state lawsuit challenging the broad-based student debt forgiveness. The states have argued that canceling debt would hurt MOHELA’s bottom line — and therefore Missouri’s — because it would eliminate many of the accounts serviced by MOHELA.
At the same time, state attorneys general are invoking the potential for MOHELA, which works with borrowers across the country, to lose student-loan accounts in litigation challenging the debt-relief program, borrowers and advocates are criticizing the way the organization has handled a recent major increase in account volume.
Last year, MOHELA took over responsibility for servicing the accounts of borrowers in the Public Service Loan Forgiveness program after the Pennsylvania Higher Education Assistance Agency — another state-affiliated entity involved in the student-loan system for decades — stopped servicing federal student loans. amid heightened scrutiny over their management of PSLF. Borrowers and advocates had complained for years that PHEAA had thrown obstacles in the way of public servants getting the relief they were entitled to.
In the months since MOHELA started managing PSLF, borrowers seeking relief under the program, which wipes away federal student debt for borrowers working in government or some nonprofits after 10 years of payments, report waiting several hours on the phone to speak with someone at MOHELA in order to check basic account information, often to no avail.
William Morton’s experience is indicative of this situation. In October, as the deadline approached for borrowers to take advantage of temporary changes made by the Biden administration to the PSLF program, he called MOHELA on three different days at three different times.
“It doesn’t matter they’re just not accepting calls,” he said at the time.
It’s crucial that Morton’s application, which he first submitted in May, works out as planned because he’s no longer working at an employer that’s eligible for Public Service Loan Forgiveness. He was laid off from his job at a nonprofit hospital during the early months of the pandemic and at 71-years-old he doesn’t plan to go back to work full time. The temporary waiver, for which applications were due October 31, allowed certain types of monthly student loan payments to count towards the 120 needed for relief under PSLF that did not previously qualify.
Most borrowers will have a second chance to access these account adjustments, but not those who are no longer working in public service.
MOHELA did not provide comment for this story, but in a letter to Representative Cori Bush, a Democrat of Missouri, the organization said it is “dedicated to processing every form received within approximately 90 business days so that the PSLF borrowers waiting can receive their PSLF form decision.”
“We continue to dramatically increase our current staff dedicated to supporting our Federal Servicing contract,” officials wrote.
Morton said he’s anxious about waiting 90 days for an answer because he doesn’t want that time to pass and for MOHELA or the government to say, “‘You should have done this, you should have done that, you don’t have that. ”
“That’s why I’ve been trying to get hold of them,” he said. Recently, Morton has become more hopeful. MOHELA updated the information on his portal on their website indicating that he has made enough payments to have his debt cancelled. Now he’s waiting to see if the discharge goes through.
Meanwhile, while borrowers like Morton were struggling to reach MOHELA, the organization’s interests are being invoked in the lawsuit brought by the six states. And although the 8th circuit’s ruling was in part based on the idea that potential harm to MOHELA is enough for Missouri to have standing to sue, the organization told Bush, the Missouri Congresswoman, in the letter that its executives “were not involved with the decision of the Missouri Attorney General’s Office,” to file the lawsuit aimed at blocking the debt relief plan.
The only communication the organization has had with the Missouri Attorney General’s office related to the student debt relief plan is through open records requests filed by the attorney general’s office for MOHELA documents related to its loan servicing contract, the organization wrote.
SBPC and the American Federation of Teachers wrote to MOHELA in October asking the organization to withdraw from the suit. In the letter they warned that participating in the suit puts the MOHELA at risk of violating a California law regulating student loan servicers in that state. That’s because the law bans these organizations from “substantially interfering” with state residents’ right to loan forgiveness.
SBPC and AFT are willing to sue MOHELA over that alleged violation in order to enforce the California law. The letter they sent served as a notice they were required to give MOHELA at least 45 days before taking any action. The organization has not responded, according to SBPC, and if they don’t before the deadline, SBPC and AFT have the right to sue.
With the government no longer making loans under the bank-based program, the portfolio of old loans originally owned or guaranteed by these state-related entities continues to shrink and “there’s still no plan to deal” with these organizations, Bergeron said. “Then they can make mischief or people can make mischief on their behalf.”
He points to another example besides the student-debt relief lawsuit. In Rhode Island, where Bergeron lives, one of these state-affiliated organizations advertised its refinance product after the Biden administration announced its debt-relief plan. That’s even though any borrowers who refinanced their federal student loans into private debt would be ineligible for the debt relief.
Chad Pastorius, deputy director at the Rhode Island Student Loan Authority, wrote in an email that the organization has been counseling borrowers not to refinance their federal loans since Biden was elected after he campaigned on student loan forgiveness. He said since November 2019, when the organization started discouraging borrowers from refinancing their federal loans, about a handful or fewer borrowers per month include their federal debt in a RISLA refinanced loan.
Pastorious called the appearance of the ad Bergeron saw “frustrating, since we always try to do the best thing for borrowers.”
“Borrowers have had to provide, in writing, a statement that they understand they are giving up federal loan benefits, including potential loan forgiveness, if they wish to include a federal loan in a RISLA refinance loan,” he said in the email. “There are also several disclosures and links throughout our application process and website to help educate and inform borrowers about federal loan benefits and loan forgiveness.”
Still, Bergeron finds the ad troubling.
“They’re basically encouraging them to give up on the $10,000 or $20,000 in cancellation they might be entitled to,” he said. “I find it inexcusable for any government entity.”
(END) Dow Jones Newswires
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