New Report Exposes More Than Five Million Student Loan Servicing Errors Hindering Public Service Loan Forgiveness

WASHINGTON— The American Federation of Teachers and the Student Borrower Protection Center today released an investigative report exposing millions of student loan servicing errors at the root of the Public Service Loan Forgiveness program. The investigation reveals new abuses by Affiliated Computer Services, a notoriously shoddy company that once managed the largest portfolio of student loans made directly by the federal government.

The report identifies over five million new ACS servicing errors that contributed significantly to the PSLF program’s failures and derailed promised loan forgiveness for hundreds of thousands of borrowers. These failures continue to plague public service workers seeking access to loan forgiveness today.

The new report includes recommendations to obtain justice for borrowers harmed by ACS’s errors and to strengthen accountability for student loan companies as part of a broader effort to restore the promise of the PSLF program. The new report, “Broken Promises: The Untold Failures of ACS Servicing,” is available at https://protectborrowers.org/wp-content/uploads/2020/10/Broken-Promises_ACS.pdf.

“The PSLF program has failed over and over to realize its bipartisan promise, and now we’re starting to grasp the reasons why: its foundations were built on quicksand,” said AFT President Randi Weingarten. “Rather than alleviating the debt burden of students committed to public service, ACS ran roughshod over them, making careless errors and pushing them into forbearance and onerous repayment plans. Justice delayed is justice denied—and that’s why the Department of Education needs to urgently read this report and act on its findings.”

“Our investigation reveals that from the outset of the PSLF program, nearly every borrower pursuing loan forgiveness was set up to fail. The blatant mismanagement of one abusive student loan company has plagued nurses, teachers, and servicemembers for a decade and continues to derail those seeking promised loan forgiveness,” said SBPC Executive Director Seth Frotman. “Now Congress and the Department of Education must take action to ensure these borrowers get justice.” 

ACS Student Loan Company Spurs Millions of Costly Errors for Borrowers

ACS operated as the sole servicer for all the student loans made directly by the federal government until 2009. This means that the first wave of borrowers who should have been eligible for PSLF—but were denied—all had their loans serviced by ACS at some point during repayment. In 2012, ACS’s contract was terminated by the Department of Education and in 2013 its portfolio of 35 million student loans was transferred to other federal loan servicers.

The investigation uncovered previously unpublished correspondence among student loan servicers, the Department of Education, and the United States Senate revealing that millions of the loan files transferred from ACS contained widespread, costly flaws, hindering or delaying borrowers’ access to PSLF. These rampant errors include public service workers regularly enrolled in repayment plans not eligible for PSLF; missing or incorrect information provided to borrowers; and records showing payments processed incorrectly.

New findings of ACS failures include:

• ACS pushed borrowers into ineligible repayment plans. ACS blatantly failed to enroll eligible borrowers in the correct repayment plans to make progress toward PSLF. Further, ACS failed to recertify qualifying program eligibility for borrowers, leaving many under the impression they were still making progress towards loan forgiveness when in reality they missed out on months of payments towards PSLF. These borrowers were often unknowingly placed by ACS in new plans with unaffordable payments.
• ACS miscalculated borrower payments and derailed progress toward PSLF. ACS regularly mismanaged the administration of borrowers’ repayment plans. Several servicers reported that borrowers were quoted the wrong payment amounts and terms, possibly disqualifying some of their payments toward loan forgiveness. One servicer, for instance, reported more than 80,000 loans transferred from ACS had incorrect loan payment amounts and terms.
• ACS mishandled records and misapplied payments. Many servicers noted that payment records for some borrowers were entirely missing or contained errors. This poor recordkeeping affected tens of thousands of borrowers. Those who had planned their financial lives around student loan forgiveness were left to try to piece together years of payment history to prove their progress toward loan forgiveness. In some cases, ACS continued charging borrowers after their loans had been transferred, leading to duplicate charges.
• ACS engaged in extraordinary, inappropriate, and likely illegal, use of forbearance, denying borrowers progress toward PSLF. ACS applied forbearances far beyond the amount permitted under the law. As a result, borrowers were hit with unexpected, avoidable interest charges that could add thousands of dollars to their loans and placing them into repayment programs ineligible for PSLF. Servicer reports show hundreds of thousands of borrowers remained in unauthorized or improper forbearance, often for five years or more.

While ACS errors were particularly harmful to those pursuing PSLF, its breakdowns were widespread and affected all types of borrowers. These errors included misstating payment information, failing to accurately report borrowers’ outstanding loan balances; failing to communicate with borrowers before the servicer transfer; and forwarding incorrect or incomplete loan data, potentially costing borrowers thousands of dollars.

View the full list of ACS breakdowns here: https://protectborrowers.org/acs-findings/

View the full correspondence obtained through the investigation here: https://protectborrowers.org/servicer-letters/

Recommendations

AFT and the SBPC issued a list of recommendations to the Education Department and policymakers to address the harm caused by ACS and to prevent future mistakes, especially as the Department weighs servicing reforms that would require an unprecedented volume of loan transfers. These recommendations are part of a joint effort to restore the promise of the PSLF program and to obtain justice for the student loan borrowers harmed by a decade of government mismanagement and industry abuses.

• Conduct a comprehensive, independent audit of loans serviced by ACS. Despite ACS’s widespread errors, there has never been a comprehensive accounting of its failures. The Department of Education should require an independent and comprehensive audit in order to fully identify and address harm to borrowers with loans serviced by ACS.
• Cancel student debt for borrowers whose debts cannot be verified. Given the widespread errors in ACS-serviced loans, the Secretary of Education should cancel in full any loan for which a complete payment history and an accurate accounting of principal and interest cannot be verified by the independent auditor.
• Establish record retention requirements for all federal student loan servicers. Servicers must be required by the Department of Education to maintain comprehensive account records so that borrowers are not penalized for servicing companies’ errors in the future. This is especially critical as the Department restarts efforts to use a new loan servicing platform, which may require as many as 40 million loan transfers in a short period.
• Expand the scope of Temporary Expanded Public Service Loan Forgiveness. Congress should again authorize an expansion of the PSLF program for borrowers who have been derailed by misinformation from student loan servicers. This effort should ensure that borrowers who lost out on qualifying months of payments towards PSLF as a result of any servicing failure receive credit.

Background

The Public Service Loan Forgiveness program was created by Congress in 2007 to provide public service workers with student loan debt relief in exchange for a decade of service in their communities. Unfortunately, since its inception, the program has been mishandled and undermined by the Department of Education and its contracted loan servicers, with only a small portion of eligible public service workers accessing their right to relief.

According to the Department of Education, the Public Service Loan Forgiveness program continues to have a nearly 99 percent denial rate.

This report is part of a joint investigation conducted by the American Federation of Teachers and the Student Borrower Protection Center examining administration of the PSLF program by the government and its contractors in an effort to expose the mismanagement and abuse that has denied or delayed millions of public service workers access to this critical program. This investigation builds on the work of regulators, law enforcement officials, government watchdogs and private litigants.

Earlier reports issued as part of this joint investigation from the AFT and the SBPC include:

“Keeping the Promise of Public Service Loan Forgiveness,” available at: https://protectborrowers.org/pslf-investigation/

“Broken Promises: Employment Certification Failure,” available at: https://protectborrowers.org/wp-content/uploads/2020/08/ECF-Failures.pdf

The Student Borrower Protection Center is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students.