Knoxville-based student loan company Edfinancial is in deep waters with the Consumer Financial Protection Bureau (CFPB). The bureau has fined the company $1 million for lying about student loan forgiveness. These shady lending practices aren’t going unnoticed, and people affected by Edfinancial’s predatory behavior may receive compensation from a CFPB fund.
Here’s what to know about what went down at Edfinancial student loan services, the penalty the company faces, and how justice may be served.
Edfinancial lied about student loan forgiveness.
According to CFPB, student loan servicer Edfinancial lied to borrowers about their eligibility for loan forgiveness. In reality, eligible students with a loan through the Federal Family Education Loan Program (FFELP) can only put payments toward requirements for Public Service Loan Forgiveness (PSLF) if they consolidate into a direct loan. Edfinancial told borrowers they would be eligible for forgiveness even when it wasn’t true. The reason? To deceive them into taking out a loan, which would increase the company’s profit.
CFPB Director Rohit Chopra clarified, “When student loan companies lie about cancellation and repayment programs for borrowers, they are breaking the law.”
CFPB slapped a $1 million fine on Edfinancial.
According to Federal Student Aid Chief Richard Cordray, loan providers are responsible for the information they put out, ensuring it’s complete and true. Cordray said, “We are making it clear to all companies that service federal student loans that they are expected to provide these borrowers with accurate information about how to get the loan forgiveness they deserve.”
CFPB ultimately fined Edfinancial $1 million for four types of deceit:
Telling borrowers with FFELP loans they couldn't receive forgiveness under PSLF, even when they could (Edfinancial did this to get more payments out of borrowers)
Telling borrowers with FFELP loans they were making payments toward PSLF to achieve forgiveness, when in fact they weren’t (their loan wasn't consolidated as a direct loan, so it didn’t count)
Telling borrowers that some public service jobs didn't make them eligible for PSLF when, in fact, they did
Failing to mention the forgiveness program PSLF to borrowers when asked about available forgiveness programs for FFELP loans
Will affected borrowers receive justice?
The $1 million fine goes towards the CFPB’s Civil Penalty Fund. As part of the Consumer Protection Act of 2010 and the Dodd-Frank Wall Street Reform, Congress established the Civil Penalty Fund to financially compensate consumers duped by law-breaking companies. If a borrower or consumer won’t receive full compensation from a lawsuit settlement, the Civil Penalty Fund helps repay partial amounts. The fund allocates money to certain victim classes every six months.
Edfinancial has to take certain steps after the $1 million fine.
Edfinancial is required to inform all of its borrowers with FFELP loans that they can take advantage of a limited PSLF waiver by consolidating their loans into direct loans by October 31, 2022. Since FFELP is an older type of loan, this transition will help the government stick to a more streamlined loan forgiveness process.