Attorney General Letitia James and Department of Financial Services Superintendent Maria T. Vullo today announced a $9 million settlement with the federal student loan servicer, ACS Education Services (currently known as Conduent Education Services).
This settlement is the first in the country to address claims that a federal student loan servicer steered distressed borrowers away from available income-based repayment plans towards other, more expensive options, thus costing them money and increasing their risk of default. It also addresses for the first time claims that a federal student loan servicer deceived borrowers concerning the availability of Public Service Loan Forgiveness (PSLF), a program that, under certain circumstances, provides forgiveness of student loan debt after a borrower works for ten years in a public-service job.
In addition to paying penalties and restitution to injured borrowers, ACS has agreed not to service loans for the major federal programs or private loans for the next five years. Most eligible borrowers will receive between $100 and $450.
“Students rely on college to be a ladder to success, but too often prohibitive costs and disingenuous loan servicers trap students in a quicksand of debt,” said Attorney General James. “ACS has systematically failed borrowers by refusing to educate them on more effective federal repayment options, and instead, pushing them towards options that padded their bottom line. At a time when the student debt crisis is at an all-time high, federal loan servicers should be supporting borrowers, not deceiving them at every turn. Everyone deserves a fair opportunity to work towards a life without debt.”
“While the federal government neglects students, New York once again acts. Today’s action demonstrates the importance of states in taking action against student loan servicers who fail to respond to the needs of student loan borrowers as required by federal and state laws,” said Department of Financial Services Superintendent Maria T. Vullo. “I am pleased that DFS acted collaboratively with the Attorney General’s Office on this important settlement which provides restitution to New York borrowers who were defrauded.”
The $9 million settlement announced today resolves several claims against ACS concerning its mishandling of student loan borrowers’ accounts. Most importantly, for several years, ACS steered struggling borrowers into forbearances, a temporary pause in payments, which are only a short-term solution for an inability to pay and usually increase the cost of a loan. It pushed these forbearances instead of directing borrowers to apply for a program that pegs payments to income and family size called Income-Based Repayment (IBR), which would have required more time and effort on the part of the company. Even after ACS largely stopped steering borrowers into forbearance, it continued to mislead borrowers, informing them that IBR was their best option despite the introduction of newer, more beneficial repayment options. In order to take advantage of these new options, the borrowers would have needed to consolidate their loans into a newer loan program, meaning that they would have been assigned to another servicer. Similarly, ACS informed borrowers who asked about PSLF that they were not eligible, even though they might have been if they had consolidated their loans.
In addition to misinforming borrowers about their options, ACS failed to provide borrowers who sought to consolidate their loans the necessary account information, preventing some from doing so for more than three years. These borrowers potentially lost years of qualifying service towards Public Service Loan Forgiveness and access to better repayment programs. ACS also failed to process IBR applications in a timely and accurate fashion; required some borrowers to reapply for IBR unnecessarily; misallocated payments by borrowers, in some cases costing them additional late fees or interest; made inaccurate reports to credit reporting agencies; did not inform private-loan borrowers about the possibility of the release of co-signers; overstated the monthly payments owed by some members of the armed forces who were eligible for reductions under the Servicemembers’ Civil Relief Act; and charged some borrowers late fees higher than the legal cap.
Finally, ACS consistently misinformed borrowers who were behind one or more payments concerning the amount they needed to pay to become current on their loans, overstating the amount due in an attempt to maximize collections.
ACS has transferred all the private and major federal loans it had been servicing to other servicers, and borrowers should continue to make payments to their current servicers. Federal student loan borrowers who are having difficulty making their loan payments or who are interested in PSLF may visit the NYAG’s Student Loan Repayment and Debt Relief Guide or the Department of Education’s website. They may also wish to discuss their options with their servicers.
The investigation was handled by Special Counsel Carolyn Fast and Assistant Attorney General Sarah E. Trombley, under the supervision of the chief of the Consumer Frauds and Protection Bureau, Jane M. Azia.