With their contract extended, PHEAA officials suggest improvements to controversial federal student loan program

By: - January 16, 2020 5:19 pm

THe PHEAA Board of Directors meets at its offices on Seventh Street en Harrisburg. Photo from Capital-Star by Elizabeth Hardison.

Despite an admission that it’s caused them to take a hit to their reputation, officials at Pennsylvania’s state-run student loan agency have nonetheless extended a contract to administer a beleaguered loan forgiveness program for the federal Department of Education.

Executives at the Pennsylvania Higher Education Assistance Agency told their board at a Thursday meeting that they had secured a two-year extension to act as the sole servicer of the Public Service Loan Forgiveness program, which offers to wipe away student debt for eligible public servants. 

The agency, better known as PHEAA, signed the contract extension shortly before Christmas, following a month of negotiations with officials from the U.S. Department of Education, CEO James Steeley told the board Thursday. 

PHEAA, now the biggest student loan servicer in the country, did not secure any pricing increases in the extension. It’s bound by the same pricing conditions that have been in place since 2009, when PHEAA signed its first 10-year, $1.3 billion contract with the Department of Education. 

PHEAA, explained. How an obscure Pa. state agency became one of the nation’s biggest student loan servicers.

But the state agency did get federal regulators to agree to improve parts of the program to make it better for debt-holders, Steeley said.

Since its inception a decade ago, the federal loan program has earned the scorn of borrowers and consumer advocates, who say it’s failed to deliver on promises for a generation of public servants.

The program had a 99 percent denial rate when its first cohort of applicants became eligible for forgiveness in late 2019.

PHEAA, meanwhile, has faced public criticism for allegedly mishandling billing and record keeping for loan applicants. 

The agency is also facing two lawsuits from the Attorney Generals of Massachusetts and New York, which say the agency caused thousands of public servants to lose benefits. 

PHEAA executives in Harrisburg insist that they’re unable to help borrowers. They say that power lies with Congress, which writes the program’s rules, and the Department of Education, which enforces them. 

Steeley hopes that change could start with an addendum included in PHEAA’s contract extension, which lists areas of improvement for the federal loan program.

Some of the recommendations in the memo will require congressional approval, Steeley said. Others could be implemented immediately by the Department of Education. 

Even if it proves largely symbolic, Steeley said the agreement is PHEAA’s first assurance from federal regulators that they will respond to borrowers’ criticisms.

“For the first time ever since we’ve administered this program, we have a clear commitment to make improvements that should help consumers,” Steeley told the board. “We’ve been seeing these things for years, we’ve communicated them for years, and finally they’ve resonated [with federal regulators.]”

PHEAA executives admitted Thursday that the agency’s association with the reviled federal program has bruised its public image.

When PHEAA entered the loan-servicing industry in 2009, the agency had steady profits and high customer service ratings from customers, Nathan Hench, vice president of public affairs, told the board Thursday. 

But that changed in 2012 and 2013, Hench said, as PHEAA began taking on more programs for the Department of Education. Its performance deteriorated through 2017, when it became one of the nation’s worst-rated loan servicers.

For the first time in a decade, PHEAA is embarking on a long-term strategic effort to improve its public image and customer service, Hench said. 

This year, that means launching a new mobile app for borrowers and expanding customer service training for employees. 

The goals Hench outlined to board members Thursday impressed consumer advocate Eric Epstein, who’s been watch-dogging PHEAA for 15 years. 

Epstein, who described himself as a “faithful critic” of the agency, applauded PHEAA for “making a good-faith effort to rebrand and become more consumer friendly.”

But he warned that a total makeover could be hard when consumers have legitimate grievances with the agency, which allegedly failed to inform borrowers of low-cost repayment plans. 

“They have to find the middle ground between being a compassionate agent of change and efficient collection agency,” Epstein said. “It’s difficult.”

Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our web site. Please see our republishing guidelines for use of photos and graphics.

Elizabeth Hardison
Elizabeth Hardison

Elizabeth Hardison covered education policy, election administration, criminal justice and legislative news for the Capital-Star from Jan. 2019-April 2021. You can find her on Twitter @ElizHardison.