June 22, 2017 / 9:10 PM / 2 years ago

Servicing issues may hamper U.S. student-loan forgiveness for thousands

WASHINGTON (Reuters) - Nurses, teachers and other public-sector workers expecting their outstanding student loans to soon disappear under a U.S. debt-forgiveness program could be in for a surprise, with a government report on Thursday showing loan servicers may have mishandled the process for many borrowers.

FILE PHOTO - A graduate's mortar board hat is pictured during a commencement for Medgar Evers College in the Brooklyn borough of New York City, New York, U.S. June 8, 2017. REUTERS/Carlo Allegri

President Donald Trump has called for eliminating the Public Service Loan Forgiveness program, where the loans of borrowers working for government, non-profits or the military are wiped out after 10 years of consistent payments. The program started in 2007, making this the first year of forgiveness for many loans.

The report from the Consumer Financial Protection Bureau (CFPB) found cases where servicers did not provide information or gave wrong or confusing information, leading borrowers to believe they would receive forgiveness when in truth they were not eligible.

Some borrowers were not told their loans were not part of the program, their repayment plans were wrong, or their employers were not considered a public service, according to the CFPB. Also, some servicers under-recorded qualifying payments or did not tell borrowers that loan consolidations wipe out payment histories, pushing forgiveness farther into the future.

The Education Department, which contracts servicers, did not respond to a request for comment. CFBP Student Loan Ombudsman Seth Frotman said agency examiners are asking servicers about issues that the report identified to help prevent future problems.

Once deemed eligible, the loans transfer to the Pennsylvania Higher Education Assistance Agency (PHEAA) for servicing. Many students encounter glitches and delays from their previous servicer then, CFPB found. PHEAA referred reporters to the Education Department.

The program allows borrowers to move out from under the shadows of debt, said Frotman, adding that many plan to save for homes or their children’s education after their loans end.

More than 430,000 people are enrolled in the program and nearly 30 percent owe more than $100,000, data shows. The CFPB said that around two-thirds of those at least wanting to enroll earn less than $50,000 a year.

Seeking to make college affordable, then-President Barack Obama moved the country’s $1.4 trillion student loans from banks to the government. He also expanded the public-sector program so that graduates would not be discouraged by large loan payments from taking often low-paying jobs that serve the community.

Critics say the program is too broad and generous, keeping taxpayers from recouping millions of loaned dollars. Trump and fellow Republicans frequently say government should “get out of the business of student loans.”

Reporting by Lisa Lambert; Editing by Jonathan Oatis

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