Federal grant program for teachers likened to bait-and-switch scam
Meghan Akins was thrilled when a counselor at Edinboro University told her about a federal grant program that could pare thousands of dollars from her tuition bills.
Designed to nudge quality teachers into struggling schools, a federal grant program provides certain students with up to $4,000 a year. Recipients must teach a high-need subject — math, science, special education, bilingual education or a foreign language — or serve as a reading specialist in a low-income school for at least four years. Otherwise, the grants convert to loans with back interest included.
A native of Derry, Akins is in her second year of teaching math at northern Virginia's Manassas Park High School — a low-income school with a student body that is about 60 percent Hispanic.
A third-generation teacher, Akins thought she was holding up her end of the deal in the Teacher Education Assistance for College and Higher Education grant program. In March, she learned that the $6,828 in grants she received had been converted to loans — without notice. Including interest, what was once a gift is now a bill for about $8,000.
A representative of FedLoan Servicing, a branch of the Pennsylvania Higher Education Assistance Agency that has handled all of the nation's TEACH grants since 2013, told Akins there was nothing he could do for her, she said.
“He said they couldn't convert my loans back to grants,” Akins said.
Two recent federal studies suggest thousands of teachers across the country face similar issues with PHEAA and FedLoan.
A recent study by the U.S. Department of Education indicated nearly two-thirds of students who received TEACH grants between 2009 and 2014 saw their grants converted to loans. A 2015 study by the federal Government Accountability Office found that more than 2,200 grants had been erroneously converted to loans.
A federal Education Department spokesman in Washington who asked not to be named acknowledged there are problems with the program.
“The results of the U.S. Department of Education's study concern us,” he wrote in an email. “The report indicates 62 percent of TEACH Grant Program recipients are not satisfying the terms of their obligation; therefore, we need to understand why and consider what changes may be needed.”
Citing the program's complex structure, student aid experts predicted problems with TEACH grants as far back as 2008.
PHEAA is fighting state and federal lawsuits across the country alleging the agency converted TEACH grants to loans even though recipients were meeting their obligations.
Massachusetts Attorney General Maura Healy sued the agency, contending it erroneously converted TEACH grants to loans and failed to properly handle its portfolio of loans under the Public Service Loan Forgiveness program, which allows remaining federal student loan balances to be discharged after a borrower has worked full time in the public or nonprofit sectors and made payments for 10 years. A spokesman for Healy declined to comment, citing continuing litigation.
A federal class-action lawsuit filed in Ohio last year under the Racketeer Influenced and Corrupt Organizations Act, also known as RICO, claimed PHEAA's FedLoan Servicing arm — which services about $445 million in TEACH grants — wrongfully converted the grants to loans because it makes more money servicing loans.
“Either they are entirely incompetent, or it's to make as much money as they can from people who have very few resources to fight them,” wrote attorney Troy Doucet of Dublin, Ohio, who represented teachers in the class-action suit.
A federal judge in Cleveland ruled the teachers could not sue PHEAA but may press their case against the U.S. Department of Education, which administers the TEACH grant program.
Doucet, however, said he plans to refile action against PHEAA under a different claim.
A half-dozen other federal class-action suits claiming PHEAA mishandled student grants and loans are awaiting a hearing later in May to determine whether they will be consolidated into a single multi-district suit, similar to what happened with complex tobacco and asbestos cases.
Lawmakers in Harrisburg created PHEAA in 1963 as a nonprofit agency to guarantee student loans issued through banks. The agency's stated mission is to make higher education accessible to Pennsylvanians.
When the federal government began issuing student loans, PHEAA won lucrative contracts to collect payment on those loans. Today, PHEAA manages $300 billion in federal student loans in addition to millions more in commercial student debt. It posted $636 million in revenue last year, with part of its profits going into Pennsylvania's student grant program.
The agency declined to comment on the lawsuits.
“We are required to follow the provisions of our contract with the (federal) Department of Education,” PHEAA spokesman Keith New said.
Problems aren't new with massive loan servicers acting as middlemen — collecting payments and handling adjustments to student loans. Like some of its counterparts, PHEAA has been sued many times by frustrated borrowers who feel agency representatives aren't treating them fairly. Typically, the agency prevails.
But those who monitor the issue say problems with the TEACH grants are particularly egregious, in part because of the results of the federal studies and because the grants were created to draw teachers into hard-to-fill positions — many of which don't pay well.
Some universities refuse to participate in the program.
Ragan Griffin, director of financial aid at Indiana University of Pennsylvania, said she wasn't comfortable with provisions that would add back interest to grants converted into loans.
“The federal government was pretty candid when they rolled out the TEACH grant program,” Griffin said. “They indicated then that they anticipated a high volume of the grants converting to loans at some point in the student's repayment/work obligation cycle.”
Many students whose grants were converted to loans say they feel they were the victims of a bait-and-switch scheme, said Clare McCann, deputy director for federal policy at the New America Foundation's Higher Education Initiative.
“A lot of times, it was because they didn't end up in the career they thought they would, or there were problems with the servicer,” McCann said.
‘More than a paycheck'
Akins is still trying find out exactly what went wrong.
She's passionate about her students and the challenges they face as English language learners.
“The kids that I have the chance to work with at Manassas Park have been through more in their lives than I can ever imagine,” Akins said. “I love teaching math because numbers are the same, no matter Spanish or English. I have kids who can barely ask to use the bathroom in English during the first week of school who end up writing an entire thank-you card at the end of the year expressing how grateful they are for my support.”
When she graduated with both federal loans and TEACH grants, her account ended up with Nelnet, a for-profit student loan servicer.
Akins set up automatic payments for her loans as soon as she started teaching and filed papers certifying she met the terms of her TEACH grant.
In February, she received notification that her account was being transferred. She logged on to Nelnet to check it out, only to find her account was gone. An online Nelnet representative told Akins it had been transferred to FedLoan.
“When I checked with FedLoan to see how I could set up my account for debits, they told me my TEACH grants had been converted to loans. They said they sent me three letters in October, but I never got one of them,” Akins said.
She said the FedLoan rep told her there is no way her loans can be converted back to grants. So she set up a payment plan.
She also filed an appeal.
Congress is aware of the problem, said Tamara Hiler, a senior policy adviser for Third Way, a think tank that monitors education issues. A bipartisan bill introduced the last two years in the House and Senate would streamline TEACH grants and various federal loan programs for teachers into a single program. It would offer payment subsidies to graduates in their first seven years in the classroom and loan forgiveness after 10 years.
But horror stories of teachers caught in the middle continue to mount.
Converting her TEACH grants to loans added about $70 to the $215 Akins already paid monthly on her student loans.
Despite the financial burden and her disappointment with the TEACH program, Akins said she's found her passion in the classroom and plans to begin work on a master's degree this summer that will enhance her skills with English language learners.
“If I can impact one student's life and let them know that they are supported, that they are cared for, and that they are loved, then I feel successful,” she said. “There isn't a workday that goes by without me laughing (either at myself or my kids), and to me that's worth more than the paycheck.”
Debra Erdley is a Tribune-Review staff writer. Reach her at 412-320-7996.