The Consumer Financial Protection Bureau has filed a $500 million lawsuit against a major student loan servicer, alleging systematic processing errors that caused borrowers to overpay, lose credit for qualifying PSLF payments, and be placed into incorrect repayment plans.
The complaint describes a pattern of negligent servicing that affected an estimated 2 million borrowers. Specific allegations include misapplying payments, failing to process income-driven repayment recertifications, and providing incorrect payoff information that extended loan terms.
The most egregious allegation involves the servicer's handling of PSLF applications, where the CFPB found that 40% of qualifying payment counts were inaccurate, causing borrowers to lose credit for months or years of eligible payments. Some borrowers who should have received forgiveness continued making unnecessary payments.
The lawsuit also targets the servicer's call center operations, where the CFPB found that representatives provided incorrect information in 30% of recorded calls reviewed by investigators. Borrowers who relied on this misinformation made costly financial decisions.
The case is the largest student loan servicing enforcement action in CFPB history and could result in restitution for millions of affected borrowers along with structural reforms to the servicing industry.
