Little-known student loan intermediaries who -2-

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The Education Funding Foundation also used about $800,000 to launch centers around the state that provided students with information about colleges, scholarships, and financial aid. Only the for-profit company affiliated with the nonprofit organization was allowed to advertise in those centers, according to Consumers Union.

The purpose of the benefits the federal government provided to these state-related entities during the early decades of the student loan program — such as assuming nearly all of the risk for guarantor agencies and offering special grants to operators secondary market – was to encourage them to participate in the program and ensure that sufficient capital was available for students to continue borrowing to attend college.

But during the financial crisis, investors became reluctant to provide capital to private lenders under the student loan system, despite the federal guarantee. To ensure that students would be able to access loans to pay for college, the government essentially bailed out these and other entities that had federal student loans – the federal government bought out some of the loans held by private lenders so that they have the capital to create new ones.

“When students needed the money the most — their parents couldn’t get a home equity loan — the system froze,” Bergeron said. “To me, that 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 student loan banking system and ensure that new federal student loans were made exclusively by the government directly to students, guarantee agencies affiliated with the State as well as non-profit guarantee organizations and secondary market operators. fought the transition, pressuring their members of Congress to keep the bank lending system in place.

When that didn’t work, “they demanded part of the contracts that followed,” Shireman said. During this period, while serving as deputy assistant secretary of education, Shireman traveled to MOHELA headquarters near St. Louis, where state leaders and legislators met. worried about the impact of the transition to direct loans on jobs in the state.

While there are no new bank loans for these organizations to issue or guarantee they received a vow from Congress that at least some would be able to participate in the direct lending program as agents of service, or organizations that administer student loan payments on behalf of the federal government.

Borrowers face long wait times

Now, that service income is part of what’s at issue in the six-state lawsuit challenging large-scale student debt forgiveness. The states argued that canceling the debt would hurt MOHELA’s bottom line — and therefore Missouri’s — because it would eliminate many MOHELA-managed accounts.

Meanwhile, state attorneys general are citing the possibility that MOHELA, which works with borrowers across the country, could lose student loan accounts in litigation challenging the debt relief program, borrowers and advocates are critical of the organization’s handling of a recent large increase in account volume.

Last year, MOHELA assumed responsibility for servicing borrowers’ accounts under the Public Service Loan Forgiveness Program after the Pennsylvania Higher Education Assistance Agency – another entity affiliated with the state involved in the student loan system for decades – stopped administering federal student loans. amid scrutiny of their handling of the PSLF. Borrowers and advocates have complained for years that PHEAA has thrown obstacles in the way of officials to get the relief they are entitled to.

In the months since MOHELA began administering the PSLF, borrowers seeking relief under the program, which clears federal student debt for borrowers working in government or certain nonprofits after 10 years of payments, report waiting several hours on the phone to speak with someone at MOHELA in order to verify basic account information, often to no avail.

The experience of William Morton is revealing of this situation. In October, as the deadline for borrowers to take advantage of the Biden administration’s temporary changes to the PSLF program approached, he called MOHELA on three different days at three different times.

“It doesn’t matter that they just don’t take calls,” he said at the time.

It’s crucial that Morton’s application, which he first submitted in May, works out as expected, as he no longer works for an employer eligible for civil service loan forgiveness. He was laid off from his job at a non-profit hospital during the early months of the pandemic and at 71, he does not plan to return to full-time work. The temporary waiver, for which applications were due Oct. 31, allowed certain types of monthly student loan payments to count toward the 120 needed for relief under the PSLF that were not previously eligible.

Most borrowers will get a second chance to access these account adjustments, but not those who no longer work in government.

MOHELA has not commented on this story, but in a letter to Rep. Cori Bush, a Democrat from Missouri, the organization said it “is dedicated to processing each form received within approximately 90 business days to Pending PSLF borrowers can receive their PSLF Decision Form.”

“We continue to significantly increase our current staff dedicated to supporting our federal maintenance contract,” officials wrote.

Morton said he was anxious to wait 90 days for an answer because he doesn’t want that time to pass and 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 tried to reach them,” he said. Recently, Morton has become more optimistic. MOHELA has updated the information on its portal on their website indicating that it has made enough payments to have its debt cancelled. Now he waits to see if the discharge passes.

Meanwhile, as borrowers like Morton struggled to reach MOHELA, the organization’s interests are being invoked in the six-state lawsuit. And while the 8th Circuit’s decision is partly based on the idea that the potential harm to MOHELA is sufficient for Missouri to have standing to sue, the organization told Bush, Congresswoman for Missouri, in the letter that its executives “were not involved in the decision of the Missouri Attorney General’s Office” to file a lawsuit seeking to block the debt relief plan.

The only communication the organization has had with the Missouri Attorney General’s office regarding the student debt relief plan is through open records requests filed by the Attorney General’s office for MOHELA records related to its loan service contract, the organization wrote.

The SBPC and the American Federation of Teachers wrote to MOHELA in October asking the organization to withdraw from the lawsuit. In the letter, they warned that participating in the lawsuit put MOHELA at risk of violating a California law regulating student loan services in that state. That’s because the law prohibits these organizations from “substantially interfering” with state residents’ right to loan forgiveness.

SBPC and AFT are prepared to sue MOHELA for this alleged violation to enforce California law. The letter they sent served as a notice that they had to give MOHELA at least 45 days before taking any action. The organization has not responded, according to SBPC, and if they don’t by the deadline, SBPC and AFT have the right to sue.

With the government no longer providing loans under the banking program, the portfolio of old loans originally held or guaranteed by these state-linked entities continues to shrink and “there is still no plan to deal with” with these organizations, Bergeron said. “Then they can mess up or people can mess up on their behalf.”

He cites another example besides the student debt relief lawsuit. In Rhode Island, where Bergeron lives, one such state-affiliated organization announced its refinancing proceeds after the Biden administration announced its debt relief plan. This is even though not all borrowers who refinanced their federal student loans into private debt would be eligible for debt relief.

Chad Pastorius, deputy director of the Rhode Island Student Loan Authority, wrote in an email that the organization has been advising borrowers not to refinance their federal loans since Biden was elected after campaigning to have the loans canceled. students. He said since November 2019, when the organization began discouraging borrowers from refinancing their federal loans, about a handful or fewer borrowers per month are including their federal debt in a refinanced RISLA loan.

Pastorious called the release of the announcement that Bergeron saw “frustrating because we are always trying to do the best for borrowers.”

“Borrowers were required to provide, in writing, a statement that they understood they were forgoing the benefits of the Federal loan, including potential loan forgiveness, if they wished 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 the benefits of federal loans and loan forgiveness.”

Still, Bergeron finds the announcement disturbing.

“They’re basically encouraging them to give up whatever $10,000 or $20,000 cancellation they might be entitled to,” he said. “I find this inexcusable for any government entity.”

-Jillian Berman

 

(END) Dow Jones Newswire

19-11-22 0852ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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