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PHEAA Student Loan Income-Driven Repayment Programs Class Action

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Plaintiff Arianne Gallagher finished law school in 2011. Since she took a public service job after that, she was eligible for certain programs to help her pay her student loans, but in the years since then, her loan total has grown to more than $160,000, her payments have ballooned from just over $800 to over $1,900, and her eligibility for forbearance has been exhausted. The complaint for this class action claims that this is the fault of the loan servicer, the Pennsylvania Higher Education Assistance Agency (PHEAA).

The class for this action is all individual student loan borrowers from the federal government who had at least one federal loan serviced by PHEAA (including under any of its assumed names) between June 17, 2009 and the present, whose accounts PHEAA placed into forbearance and who were damaged as a result.

PHEAA was created to improve educational opportunities for Pennsylvania residents, but it now has a business servicing federal student loans as FedLoan Servicing or American Education Services. The complaint quotes the Fourth Circuit from a previous case calling PHEAA “a very wealthy corporation…”

PHEAA runs four income-driven repayment (IDR) programs to help graduates pay down their debts if the standard repayment amount is too high. After 20 to 25 years of payments, borrowers may get forgiveness of the remainder of their loans. Those in public service jobs may get forgiveness even sooner, after just 120 qualified monthly payments. PHEAA supposedly gives student borrowers free advice on which plan would help them most.

However, the complaint says that this is far from the reality that students may experience. It claims that PHEAA saves money by understaffing. Since it may take months to process plan change requests, it places borrowers in forbearance without their permission. During this time, they cannot make qualifying payments.

During this time, additional interest accrues. Also, borrowers can lose the Federal Interest Subsidy that is paid on their behalf, and all of this interest may be added to the principal balance. The complaint says, “Forbearance triggers the capitalization of not just the interest that accrues during the forbearance period, but all interest that has accrued over the life of the loan.” Plaintiff Gallagher, for example, had more than $13,000 worth of interest added to the principal amount of her loan.

The higher principal then makes monthly payments higher.

This mismanagement places burdens on borrowers, the complaint says, as in the case of plaintiff Gallagher.

The complaint claims that PHEAA has violated the state’s Unfair Trade Practices and Consumer Protection Law, and constitutes breach of contract and negligence.

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