Settlement highlights problems in loan servicing

ACS allegedly misled borrowers about repayment plans.

ACS Education Services, a company that once man- aged one of the largest portfolios of student loans, will pay New York $9 million to resolve charges of steering struggling borrowers away from affordable repayment plans, state officials said recently.

“ACS has systematically failed borrowers by refusing to educate them on more effective federal repayment options, and instead, pushing them toward options that padded their bottom line,” said New York Attorney General Letitia James, who worked alongside Maria T. Vullo, the state’s superin- tendent of financial services, on the case.

The complaint focused on federal loans originated by private lenders through the defunct Federal Family Education Loan Program. Big banks including JPMor- gan Chase and Wells Fargo owned some of those feder- ally backed loans and hired ACS, now known as Conduent Education Services, to collect payments from borrowers.

Though the loans were held by private lenders, bor- rowers were eligible for federal programs that could ease their debt burden. But pros- ecutors say ACS withheld information from borrow- ers about those programs to hold on to accounts.

According to the com- plaint, ACS misled borrowers about income-driven repayment plans that can lower monthly bills and eventu- ally offer loan forgiveness.

To take advantage of those plans, borrowers had to consolidate their loans into a loan program that would have resulted in the account being transferred to another servicing company. ACS allegedly failed to provide borrowers seek- ing consolidation necessary account information, which prevented some from completing the process for more than three years. To avoid losing other accounts, prosecutors say ACS misled borrowers about their eligibility for Public Service Loan Forgiveness, a program that cancels federal student debt after 10 years of on-time payments for people who take public-sector jobs. Authorities claim the com- pany also steered too many people into short-term post- ponement of loan payments, which resulted in more inter- est accruing. Placing some- one in forbearance requires less paperwork than enroll- ing that person in an income- driven repayment plan. New York officials say ACS engaged in a litany of other consumer protection viola- tions, including wrongly allocating borrower payments, inaccurate credit reporting and overstating monthly payments. “New York’s action shows exactly how the industry routinely denies borrowers — including dedicated pub- lic servants — their rights and keeps them needlessly chained to their debts,” said Seth Frotman, execu- tive director of the nonprofit Student Borrower Protection Center. “It needs to stop. We have to protect borrowers.” Under the terms of the agreement, Conduent will pay a $1 million fine and $8 million in restitution to about 55,000 New Yorkers affected by ACS’s alleged practices. Eligible borrow- ers will receive a check for up to $450, depending on the severity of the harm. People who were put into forbearance for three consecutive years, for instance, will receive a higher amount than those whose payments were postponed for two con- secutive years, according to the attorney general’s office. The agreement bars Conduent from servicing loans for the major federal programs or private loans for the next five years. The com- pany exited the student loan servicing business in Octo- ber. Conduent was previously an arm of Xerox but separated from the company in recent years. Conduent spokesman Sean Colli ns said New York’s investigation, ini- tiated in 2014, centers on servicing activity dating to the 1990s. He said the com- pany pany nor denied has has “neither "neither liability” admitted admitted but “is pleased to put this legacy behind it.” When Xerox acquired it in 2010, ACS was the sole servicer for all of the education loans made directly by the federal government, with a contract valued at about $2 billion. Even when the gov- ernment hired other companies to handle the surge in direct loans, ACS continued to manage a portion of the portfolio as well as debt originated bank-based through program. the defunct “The D epartm e nt has been loath to release information on ACS’s performance, but ACS was consistently found to be out of compliance by the inspector general and external entities,” said Colleen Campbell, associate director for postsecondary education at the Center for American Progress, a liberal think tank. By 2013, the Education Department transferred all of the direct loans that ACS managed to other servicers. Still, ACS continued to service federally backed loans on behalf of banks. Campbell said the New York settlement “makes a case for millions of borrowers to receive partial forgiveness on debt that was mismanaged by ACS.”