April 13, 2021

At Hearing, Warren Calls Out Giant Student Loan Servicer PHEAA for Public Service Loan Forgiveness Failures

"Mr. Steeley, I think that PHEAA has demonstrated that you cannot administer this program, and I think the Department of Education should terminate your contract."

"So far, about 225,000 people have hit the ten-year mark and applied for forgiveness. But a whopping 98% of them have been rejected."

Video of Hearing Exchange (YouTube)

Washington, D.C. - Today, during her first hearing as chair of the Senate Banking, Housing, and Urban Affairs Committee's Subcommittee on Economic Policy, U.S. Senator Elizabeth Warren (D-Mass.) questioned James Steeley, CEO of loan servicer Pennsylvania Higher Education Assistance Agency (PHEAA), about the company's failures to provide appropriate relief for borrowers eligible for the Public Service Loan Forgiveness (PSLF) Program - which is supposed to forgive student debt for public servants after ten years. So far, about 225,000 people have hit the ten-year mark and applied for forgiveness, but 98% of them have been rejected. At the hearing, Senator Warren also continued her calls for President Biden to use his existing authority to cancel up to $50,000 in student debt.

Investigations by the Consumer Financial Protection Bureau and the Department of Education Inspector General revealed that PHEAA's "flawed payment processing, botched paperwork and inaccurate information" prevented hundreds of public service workers from receiving their earned loan forgiveness, and identified "a pattern of noncompliance at PHEAA" where the servicer's representatives failed to provide borrowers with sufficient information about available repayment options.

U.S. Senate Banking, Housing, and Urban Affairs Committee's Subcommittee on Economic Policy - "The Student Debt Burden and Its Impact on Racial Justice, Borrowers, and the Economy"
James Steeley, CEO of loan servicer PHEAA
Tuesday, April 13, 2021

Senator Elizabeth Warren: Let me start with you, Mr. Steeley. Taxpayers pay your company, PHEAA, to manage the Public Service Loan Forgiveness program, which we've heard a lot about here today. The program is supposed to forgive student debt for public servants -  you know, like teachers, and nurses, and members of the military - after ten years.

So far, about 225,000 people have hit the ten-year mark and applied for forgiveness. But a whopping 98% of them have been rejected.

Now, no one should be let off the hook for the disaster that this program has turned into. But it is your job to ensure that people who have followed the rules get relief. 

The most common reason a borrower gets turned down is because your company says that they haven't made enough qualifying payments. But there are now multiple lawsuits and investigations that have found that you systematically undercount payments.    

Mr. Steeley, just to take one example, the Education Department audits dating back to 2016 have shown that PHEAA's automated system creates errors and mistakenly disqualifies payments. Is that correct? 

James Steeley: I'm sorry, Senator, I do not believe that that is correct. You know, anytime we identify an issue, whether it's a regulator like the Education Department or through our own control procedures, we actively investigate it and we work to make it right for the borrowers.

Senator Elizabeth Warren: So then I don't think I quite understand your answer. Are you saying the Education Department audits dating back to 2016 did not show that PHEAA's automated system created errors and mistakenly disqualified people? Or are you saying it did show that, but then you fixed it afterwards?

James Steeley: Senator, I'm not familiar with the audit that you're speaking. It was prior to the time that I was in my current role. 

Senator Elizabeth Warren: This is multiple audits that we're talking about here. Well, let me try another question then. Let me turn this around again to Attorney General Healey. Mr. Steeley says that he doesn't know about any problems at PHEAA. So let me ask you, Attorney General Healey, are these just isolated incidents, these audits that we've heard about. What has been your experience as you have investigated PHEAA?

Massachusetts Attorney General Maura Healey: Well, five years of investigation of PHEAA, and other years spent investigating Navient. Both of these entities made a promise to the United States government that they could handle this work, as complex as they want to characterize it. And they failed miserably and of course made boatloads of money for themselves in the interim, while borrowers are left high and dry. In our investigation specifically of PHEAA, what we found is that they repeatedly misinformed future teachers, firefighters, police officers, social workers -- right, because these were people who were looking to do public service work -- they routinely misinformed them about the requirements of the program, about their status in it and whether they were qualified. They would delay processing applications, they would delay processing payments, which resulted in people being booted off in terms of eligibility. A question was posed earlier about fraud. I'll tell you all about fraud. It's why the attorney general's office here and in other states have sued both of these entities for what we call "unfair and deceptive practices to borrowers." PHEAA, for example, we found in our investigation was over-billing - double-billing - borrowers. The record is replete. As I say, we did enter into a civil settlement agreement with them. It is my hope and expectation that going forward with respect to both of these loan servicers, that the right measures be put in place. But the history through our investigation is loan servicing practices, replete with deception, to the severe detriment of borrowers. 

Senator Elizabeth Warren: Well, thank you very much, Attorney General Healey. You have the on-the-ground experience with PHEAA and with the other student loan servicers. You know, it seems clear to me that PHEAA presides over a so-called public service loan forgiveness program that has proven itself nearly incapable of ever actually granting public servants any loan forgiveness.

Mr. Steeley, has the Department of Education terminated your contract or penalized your company in any way for its errors and mismanagement that have prevented teachers, and firefighters, and other public servants from getting the debt cancellation that the law provided them?

James Steeley: Senator, I'd like to answer your question at first by saying, no they have not. But also note, that the majority of the rejections that you note, you know the 200 and some thousand rejections, over 75 percent are simply because the individuals that applied for forgiveness had not been in the program for ten years. Now, I didn't write that requirement. The United States Congress and the US Senate wrote that requirement. 

Senator Elizabeth Warren: Let me stop you there, though, if I can Mr. Steeley, because that's the fundamental question: Are you counting accurately? Because that's the one thing the federal government asks you to do. And as I see it, I think what the data show is that 59% of ineligible public service loan forgiveness applications were denied because they did not have enough qualifying payments. Borrowers aren't filling out these applications for fun. They're filling them out because their understanding is they've been writing checks for ten years or longer. This is a program that's now fourteen years old, and you're telling me that you could only find the payments for 2 percent of them? 

James Steeley: So Senator, first, as I noted just a minute ago, the primary reason that these applications are rejected is because they have not been in repayment of a qualified direct loan for ten years. And in addition, I would like to note, with all the errors that have been referred to, particularly with respect to Massachusetts, there are twenty-five individuals spoken to in the settlement agreement. Over the years of the investigation, we serviced 250,000 individuals in the state of Massachusetts. You know, we strive day in and day out to do our best for the people of Pennsylvania, for the customers we service. We advocate on their behalf for program improvements to increase those forgiveness rates that you note. And ultimately, yes, the Massachusetts Attorney General did find 25 individuals, and we worked to make those corrected. In fact, these individuals--

Senator Elizabeth Warren: But the investigations are not simply about a random error, right? They're about systematic undercounting. And when you undercount the number of payments, that means that people can't go qualify for the programs. Well, let me just give Attorney General Healey a quick chance to reply. We're way over time here. But Attorney General Healey, would you like to respond?

Massachusetts Attorney General Maura Healey: You know, I'm trying to be constructive here because this is about a forward-going, what do we need to do to fix the system. But I want to be very clear: We found systematic failures both with respect to PHEAA and with respect to Navient. There is a reason, Madame Chair, that PHEAA has agreed to do a loan by loan, borrower by borrower audit just with respect to 218,000 borrowers in Massachusetts. If that doesn't signal that they know they had a problem? That's just Massachusetts. I don't know what else does. So, you know, there's a point about accountability and there's a point about what's gonna happen in terms of why debt cancelation is imperative. But for PHEAA to suggest that it had the capacity to, or even now has the capacity, to engage in that kind of borrower-by-borrower analysis and processing. The reason those people were ineligible, many times was because PHEAA lost the records, wasn't keeping track. So by fault, they became, PHEAA created their ineligibility. And again, I think it's a shame for the borrowers who we're speaking of today.  

Senator Elizabeth Warren: And one of these investigations, I recall, said PHEAA left it up to the borrowers to figure out if there had been an error, rather than PHEAA having to get it right to begin with and put its own processes in place. Look, Mr. Steeley, I think that PHEAA's demonstrated that it can't administer this program. I think the Department of Education should terminate your contract. But I think we've also established that teachers and firefighters aren't going to be any better off with Mr. Remondi over at Navient in charge. 

This is an utterly broken system. And the solution is not more complexity and more incompetent middlemen. The best way to deliver relief to public servants crushed by student loan debt is to cancel their debt -- and not after 10 years of bureaucratic torture and miscounted payments, but just to do it now. Senator Menendez, I believe you're with us now.