Why is Betsy DeVos Tolerating a An Unexcused Absence From a Student Loan Servicer CEO?

September 19, 2019

The CEO is refusing to update Congress on implementation of the Public Service Loan Forgiveness program. 

WASHINGTON, DC — James H. Steeley, the President and CEO of the Pennsylvania Higher Education Assistance Agency (PHEAA) – the student loan servicer that oversees the troubled Public Service Loan Forgiveness (PSLF) program – is refusing to testify today before the House Education and Labor Subcommittee hearing on the failed implementation of the program.

“Taking a page out of the President’s ‘never testify’ playbook, PHEAA doesn’t want to face the music about theirterrible recordof servicing student loans.” said Derek Martin, director of Allied Progress. “If Secretary Betsy DeVos doesn’t call them out for this slap in the face to our federal system, she either doesn’t care or she’s complicit in their defiance of Congress. Neither is acceptable.”

Martin continued, “Secretary DeVos has refused to demand better from PHEAA so we’re not surprised she’s dithering on demanding an explanation from Steeley about why he will be marked ‘ABSENT’ at today’s hearing.”

The Government Accountability Office (GAO) recently criticized DeVos in a scathing report for not properly utilizing a 2018 Congressional “fix” designed to make it easier for teachers, nurses, and other public service professionals to complete the paperwork for PSLF.

WHAT YOU NEED TO KNOW:

PHEAA Executives Make High Salaries Despite Poor Service Resulting In Unusually High Rates Of Delinquent Borrowers And Defaulted Loans—Not To Mention Complaints About The Public Service Loan Forgiveness Program

The President And CEO Of PHEAA—A Quasi-Governmental State Agency That Services Federal Student Loans Through Its FedLoan Arm—Is Among The Highest Paid Pennsylvania State Employees, Making $330K Per Year.

James Steeley Makes $330,000 A Year As President And CEO Of Pennsylvania Higher Education Assistance Agency (PHEAA), A Quasi-Governmental State Agency.

PHEAA President And CEO James Steeley Makes $330,000 A Year. “Once again, the state’s student financial aid agency conducted a national search for its next president and CEO and landed on someone already on its payroll. The Pennsylvania Higher Education Assistance Agency board of directors on Thursday named its interim CEO James Steeley to lead the 3,300-employee agency on a permanent basis. […] Steeley is the seventh person in the 56-year-old agency’s history to head this agency. He will be paid $330,000 a year, which is one of the highest paid positions in all of Pennsylvania’s state government.” [Jan Murphy, “PHEAA finds its next CEO inside its Harrisburg headquarters,”Penn Live, 01/17/19] 

• The Pennsylvania Higher Education Assistance Agency (PHEAA) Is “A Quasi-Governmental Agency Originally Established By The State Of Pennsylvania.”“PHEAA declined to comment on the judge’s ruling. It had argued that as a quasi-governmental agency originally established by the state of Pennsylvania to provide student loans to its residents, it enjoyed sovereign immunity that protects it from being sued.” [Nate Raymond, “Massachusetts can sue federal student loan servicer, judge rules,” Reuters,03/01/18]
• FedLoan Is PHEAA’s Federal Student Loan Servicing Division. “That’s been the experience of many borrowers dealing with FedLoan, part of the state-run monolith Pennsylvania Higher Education Assistance Agency (PHEAA) that services about 7.5 million federal student borrowers.” [Bob Fernandez and Erin Arvedlund, “Is FedLoan, America’s giant student loan servicer, running out of money?,” The Philadelphia Inquirer, 02/24/19]

PHEAA’s Previous President And CEO James Preston—One Of The Highest Paid Pennsylvania State Government Employees—Made $329,887 Per Year. 

Former PHEAA President And CEO James Preston Made $329,887 Per Year And Was “Among The Highest Paid State Government Employees.” “The president and CEO of Pennsylvania Higher Education Assistance Agency announced on Thursday he will be retiring from his post in July. James Preston, 67, has been employed for the past 15 years by the agency that oversees the state grant program and is as one of the nation’s largest student loan servicers. […] Preston, who receives a $329,887-a-year salary, is among the highest paid state government employees.” [Jan Murphy, “Retiring Pa.’s student aid agency CEO praised as ‘an incredible force’ in helping students go to college,” Penn Live, 02/15/18]

However, PHEAA’s Poor Track Record Doesn’t Justify The High Salaries – The Student Loan Servicer Has Been Sued For Failing To Properly Process Payments And Has Had The Highest Rates Of Delinquent Borrowers And Defaulted Loans.

PHEAA Is Facing A Bundle Of Class-Action Lawsuits Brought By Tens Of Thousands Of Borrowers Who Have Been Saddled With Additional Debt Because The Servicer Failed To Properly Process Payments. 

PHEAA Currently Is Facing Ten Class-Action Lawsuits That Have Been Bundled In Federal Court In Philadelphia Brought By Tens Of Thousands Of Borrowers Who “Have Been Saddled With Additional Debt Because PHEAA Cannot Or Will Not Properly Process Their Payments.”University of Pittsburgh Law graduate Arianne Gallagherwas “a plaintiff in one of 10 class-action lawsuits filed against the Pennsylvania Higher Education Assistance Agency that have been bundled in federal court in Philadelphia. The plaintiffs — borrowers from 10 states — say they represent tens of thousands who have been saddled with additional debt because PHEAA cannot or will not properly process their payments.The agency, which conducts its federal loan business as FedLoan Servicing, does not comment on pending litigation, spokesman Keith New said. But he maintains PHEAA is living up to the terms of its contracts with the U.S. Department of Education. The federal agency hired PHEAA to process payments on 7.6 million student loans, which represents about a quarter of the $1.3 trillion in federal student loan debt owed by 44 million Americans.”[Deb Erdley, “Federal class-action lawsuits target practices of Pennsylvania-based student loan agency,” Pittsburgh Tribune-Review, 09/01/18]

PHEAA Was Sued In Massachusetts For Allegedly Preventing “Borrowers From Making Qualifying Monthly Payments That Count Toward Loan Forgiveness” And Also For Overcharging Students. In 2017, “Massachusetts Attorney General Maura Healey filed the lawsuit against Pennsylvania Higher Education Assistance Agency, which manages over a fourth of the nation’s $1.4 trillion student loan debt on behalf of various lenders. The complaint, filed in Suffolk County Superior Court, claimed PHEAA caused teachers and other public servants to lose benefits and financial assistance under two federal programs.”[Nate Raymond, “Massachusetts accuses PHEAA of unfair student loan servicing practices,” Reuters, 08/23/17]

• “According to Healey’s lawsuit, PHEAA has prevented borrowers from making qualifying monthly payments that count toward loan forgiveness and also overcharged students.” [Nate Raymond, “Massachusetts accuses PHEAA of unfair student loan servicing practices,” Reuters, 08/23/17]

PHEAA Has The Highest Rates Of Delinquent Borrowers And Defaulted Loans Of All Federal Loan Servicers. 

According To FTC Commissioner Rohit Chopra, PHEAA “Had The Lowest Percentage Of Borrowers In Current Repayment Status, The Highest Percentage Of Those Considered Severely Delinquent And Highest Percentage Who Had Defaulted” At The End Of 2017. “Rohit Chopra, a U.S. Federal Trade commissioner and former student loan ombudsman for the federal Consumer Financial Protection Bureau, analyzed the numbers and said they bear ‘an uncanny resemblance’ to problems in the mortgage servicing market that set off the recession a decade ago. ‘The default rates on student loans are alarmingly high,’ Chopra said. ‘And there are some serious questions about how student loan servicers might be responsible for many of these defaults. Importantly, in the federal student loan program it is easy to avoid default if you get the right information because all borrowers are entitled to repay their loans based on income.’ Chopra said PHEAA, the nation’s second-largest student loan servicer, at the end of last year had the lowest percentage of borrowers in current repayment status, the highest percentage of those considered severely delinquent and highest percentage who had defaulted.” [Deb Erdley, “Federal class-action lawsuits target practices of Pennsylvania-based student loan agency,” Pittsburgh Tribune-Review, 09/01/18]

PHEAA’s FedLoan Is The Only Servicer That Manages Loans For The Department Of Education’s Public Service Loan Forgiveness Program (PSLF).

FedLoan, “An Arm Of” PHEEA, Is The Only Servicer That Managers Loans By Borrowers Pursuing Public Service Loan Forgiveness.

FedLoan, “An Arm Of” PHEEA, “Is The Only Servicer Designated By The Education Department To Manage Loans Held By Borrowers Pursuing Public Service Loan Forgiveness.” “FedLoan, an arm of Pennsylvania Higher Education Assistance, is the only servicer designated by the Education Department to manage loans held by borrowers pursuing Public Service Loan Forgiveness.” [Danielle Douglas-Gabriel, “Watchdog agency blasts government contractor for mishandling student loan forgiveness program,” The Washington Post, 06/22/17]

• The Department Of Education Manages The PSLF Program And Contracts With A Single Loan Servicer—FedLoan—“To Handle Day-To-Day Activities Associated With The Program,” Including Making Determinations About Whether Employment And Loans Qualify For PSLF. “The Department of Education (Education) manages the PSLF program and contracts with a single loan servicer to handle day-to-day activities associated with the program, which include responding to borrower inquiries, making preliminary determinations about whether borrowers’ employment and loans qualify for PSLF, and processing loan forgiveness applications.” [“Public Service Loan Forgiveness: Education Needs to Provide Better Information for the Loan Servicer and Borrowers,” U.S. Government Accountability Office, 09/05/18]

The First Borrowers Began Applying For Loan Forgiveness Under The PSLF Program In September 2017. 

The First Borrowers Began Applying For Loan Forgiveness In September 2017, Ten Years After The PSLF Program Was Established. “Starting in September 2017, borrowers began applying to have their federal student loans forgiven through the Public Service Loan Forgiveness (PSLF) program. This program, established by law in 2007, is intended to encourage individuals to enter and continue careers in public service by forgiving borrowers’ remaining federal student loan balances after they have made at least 10 years of loan payments while working in public service and meeting other requirements.” [“Public Service Loan Forgiveness: Education Needs to Provide Better Information for the Loan Servicer and Borrowers,” U.S. Government Accountability Office, 09/05/18]

In Late 2018, The Department Of Education Found That 99% Of PSLF Applications Were Denied—Only 55 Out Of 19,300 Applications For PSLF Were Approved In The First Eight Months Since Borrowers Became Eligible To Apply. 

Data From The Department Of Education Showed That 99 Percent Of Applications For Loan Forgiveness Under The Program Have Been Denied.

“[…] Recent Data From The Department Of Education Show That 99 Percent Of Applications For Loan Forgiveness Have Been Denied.” “But recent data from the Department of Education show that 99 percentof applications for loan forgiveness have been denied. The pitch may have been simple, but the execution was anything but.” [Cory Turner, “Why Public Service Loan Forgiveness Is So Unforgiving,” NPR, 10/17/18]

In The First Eight Months Since Borrowers Became Eligible To Apply, Only 55 Borrowers Out Of 19,300 Were Approved For Loan Forgiveness Under The PSLF Program. 

The Government Accountability Office (GAO) Found That, Out Of The 19,300 Applications Submitted By Borrowers Between September 2017 And April 2018, Only 55 Borrowers Were Approved For Loan Forgiveness.“In the first 8 months that borrowers were able to apply for loan forgiveness (September 2017 through April 2018), Education had approved 55 borrowers and forgiven a total of almost $3.2 million in outstanding student loan balances, an average of almost $58,000 per borrower. The amount of loan forgiveness for individual borrowers ranged from almost $800 to almost $290,000. Over 19,300 borrowers had submitted loan forgiveness applications as of April 2018.” [“Public Service Loan Forgiveness: Education Needs to Provide Better Information for the Loan Servicer and Borrowers,” U.S. Government Accountability Office, 09/05/18]

After ED’ Mass Denials To PSLF Applicants, Congress Temporarily Expanded PSLF And ED Denied 99% Of Applicants To The Expansion Program Based On A Requirement That Was Not Statutorily Mandated By Congress. 

In 2018, Congress Provided A Temporary Expansion Of PSLF That Gave Applicants Another Chance To Have Their Federal Student Loans Forgiven With “Simpler Requirements.”

In 2018, “Congress Stepped In And Ordered A Program Expansion” That Gave “Applicants Another Chance To Clear Their Federal Student Loans” With “Simpler Requirements.”“Congress stepped in and ordered a program expansion in 2018 to offer the applicants another chance to clear their federal student loans through a new program with simpler requirements.” [Alexa Díaz, “Federal student loan forgiveness program rejects almost everyone, again,” Los Angeles Times, 09/05/19]

In September 2019, The GAO Revealed That ED Rejected 99% Of Applicants To The Temporary Expansion Program With Only 661 Approved Of 54,000 Requests.

In September 2019, The GAO Revealed That The “Education Department Has Rejected 99%” Of Applicants To The Temporary Expansion Program With Only 661 Approved Of 54,000 Requests.“But a year later, a new watchdog report has found, the Education Department has rejected 99% of those applicants too. The Government Accountability Office report released Thursday found that of the more than 54,000 applications to the new program — named Temporary Expanded Public Service Loan Forgiveness — processed through May, only 661 were accepted.” [Alexa Díaz, “Federal student loan forgiveness program rejects almost everyone, again,” Los Angeles Times, 09/05/19]

The Reason Many Borrowers Were Rejected Was Based On A Stipulation Implemented By ED “That Congress Didn’t Order.” 

The Primary “Reason Borrowers Were Rejected” Was Based On “A Requirement That Congress Didn’t Order And That Applicants Found Confusing.”“The biggest reason borrowers were rejected under the new program, the report found, was that they hadn’t separately applied to the original program — a requirement that Congress didn’t order and that applicants found confusing. There’s no formal appeals process, the report said, and key parts of the Education Department website lack information about the new program.” [Alexa Díaz, “Federal student loan forgiveness program rejects almost everyone, again,” Los Angeles Times, 09/05/19]

The Trump Administration Has Proposed Eliminating PSLF Altogether, As Part Of A Proposal That Betsy DeVos Said Eliminated “‘Ineffective Federal Programs.’”

The Trump Administration Has Proposed Eliminating The PSLF Program Altogether.

As Part Of The Trump Administration’s FY 2020 Budget Proposal, “The White House Proposed Eliminating PSLF.” “As part of the budget the White House proposed eliminating PSLF, a program signed into law in 2007 that allows borrowers who work in government and some nonprofits to have their loans forgiven after 10 years of payments. This marks one of a few instances the Trump administration has floated the idea of eliminating PSLF.” [Jillian Berman, “The Trump administration proposes eliminating Public Service Loan Forgiveness,” MarketWatch, 03/12/19]

In Response To Trump’s Proposal, DeVos Said The Administration Was Eliminating “‘Ineffective Federal Programs’” And Had To Make “‘Tough Decisions.’”

In Response To The 2020 Budget Proposal, Betsy DeVos Said The Administration Was “‘Eliminating Duplicative And Ineffective Federal Programs’” And That “‘Tough Decisions Were Made.’”“‘We have also reaffirmed our commitment to spending taxpayer dollars wisely and efficiently by consolidating or eliminating duplicative and ineffective federal programs. Tough decisions were made.’” [Press Release, U.S. Department of Education, 03/11/19]

###