The Pennsylvania Higher Education Assistance Agency, one of the largest student loan servicers in the country, announced yesterday that it will stop servicing federal student loans by the end of this year, citing the increasing complexity and cost of handling loans on behalf of the Department of Education. The announcement affects about 9 million individuals who were having their loans serviced by PHEAA.
“In the 12 years since PHEAA accepted the terms of its federal servicing contract, the federal loan programs, as managed by the U.S. Department of Education, have grown increasingly complex and challenging while the cost to service those programs increased dramatically,” Keith New, a spokesman for PHEAA, said in a statement.
PHEAA had been working with the Department of Education to service student loans for the past 12 years. The original agreement was for 10 years when it was signed in 2009, but was extended through the end of this year while the Education Department overhauled its servicing platform.
The company said it will likely lay off some of its 2,250 employees.
“Millions of loan borrowers can breathe a sigh of relief today knowing that their loans will no longer be managed by PHEAA, an organization that has robbed untold numbers of public servants of debt relief and was recently caught lying to Congress about its atrocious record of fines and penalties,” said Sen. Elizabeth Warren [D-Mass.], in a statement. Sen. Warren had previously called on the Education Department to fire PHEAA.
Earlier this year, the Attorney General of Massachusetts reached a settlement with PHEAA that required the servicer to audit all 200,000 of its accounts in the state to determine if an error or misrepresentation was made. Back in 2017, PHEAA was accused by the Consumer Financial Protection Bureau of mishandling student loan forgiveness programs.
Richard Cordray, the chief operations officer for Federal Student Aid, said that the Education Department will work with PHEAA on winding down its student loan servicing to ensure a smooth transition for all involved.
“This plan will feature early and frequent communications and clear guidance on what borrowers should expect, as well as strong oversight from FSA during this transition,” Cordray said. “The U.S. Department of Education is committed to using all of the tools in our toolbox to make sure borrowers are supported and not negatively impacted during this transition.”
