Consumer group sues to obtain PHEAA's student loan servicing contract

A national consumer group is suing the federal government to obtain access to the 600-page contract that details its relationship with the Pennsylvania Higher Education Assistance Agency (PHEAA).

The National Consumer Law Center, which filed suit in federal court in Massachusetts, maintains the document that outlines PHEAA’s duties and obligations as a student debt loan servicer under contract to the federal government, is critical to the public’s understanding of problems in the $1.5 trillion student debt market.

Persis Yu, a lawyer for the National Consumer Law Center and director of its Student Loan Borrower Assistance Project, said the group filed suit under the Federal Freedom of Information Act asking the court to enforce the public’s right to know about the relationship between the U.S. Department of Education and the Pennsylvania agency that has come under fire for its performance servicing the student debt of millions of Americans.

“Servicers who mistreat student loan borrowers and steer them into inappropriate payment plans should not be above the law,” Yu said. “The materials sought are of tremendous importance to understanding the $1.5 trillion student loan market, the vast majority of which is held by the Education Department and serviced by its contractors. Understanding what the department requires from its contractors will improve public understanding of both how servicers are expected to perform and how the department can better hold servicers accountable.”

She said the center asked the court to intervene only after its official freedom of information request for documents was logged in at the U.S. Department of Education and went unanswered for nine months. A similar request by the Tribune Review has been pending for three months.

Although the contract outlines the relationship between the federal government and a state agency, PHEAA likewise has declined to make it public. Contracts and documents detailing the finances of state agencies generally are public in Pennsylvania. But in response to a request for the contract the Tribune-Review filed with PHEAA earlier this year, the agency cited a clause in its state charter that specifically exempts it from disclosing contractual arrangements with the lenders.

The U.S. Department of Education has been the lender of origin for all federal student loans since 2009.

Shortly after that date, PHEAA began winning contracts that landed it servicing business for some $343 billion in outstanding student debt. The National Consumer Law Center said PHEAA is expected to collect up to $194 million dollars this year on those debt servicing contracts.

PHEAA’s handling of student debt has come under fire in various audits, consumer complaints and class action suits that allege poor loan servicing has created hurdles to loan repayment, added to the cost of debt and ultimately driven borrowers to default.

Officials at PHEAA have consistently declined to discuss those issues, referring all questions to the Department of Education.

“There are a number of problems, especially with repayment and public service loan forgiveness servicing. There has been a lot of finger pointing,” Yu said. “We want to know what the department is telling (PHEAA). Should they be doing more? …It is really instructive to know how (PHEAA) is being instructed by the department.”