A student-loan company just got hit with a $1 million penalty for 'breaking the law' by lying to borrowers about loan forgiveness, Biden's top consumer watchdog says

• The CFPB fined student-loan company Edfinancial over findings the company lied to borrowers.
• The bureau said borrowers with FFEL loans, in particular, were misled about Public Service Loan Forgiveness.
• The CFPB is requiring Edfinancial to pay a $1 million fine and inform borrowers of forgiveness options.

A small student-loan company just got charged a hefty fine for accusations of lying to borrowers about loan forgiveness and repayment programs.

On Wednesday, the Consumer Financial Protection Bureau (CFPB) sanctioned Edfinancial Services for "making deceptive statements to student loan borrowers and misrepresenting their forgiveness and repayment options to them," according to the press release.

Specifically, the bureau said Edfinancial did not provide accurate information to borrowers of the privately held Federal Family Education Loan (FFEL) program about their eligibility for the Public Service Loan Forgiveness (PSLF) program — a program that forgives student debt for public servants after ten years, and recently expanded its eligibility to include FFEL borrowers through a temporary waiver.

"Edfinancial's failure to tell the full truth to borrowers, so it could pad its bottom line highlights a systemic problem with loan servicing," CFPB Director Rohit Chopra said in a statement. "When student loan companies lie about cancellation and repayment programs for borrowers, they are breaking the law."

Edfinancial did not immediately respond to Insider's request for comment.

In October, the Education Department announced reforms to PSLF — one of which included a waiver through October 2022 that would allow past payments, including those that might not have qualified for the program, to be counted toward PSLF progress. That included borrowers in the FFEL program, which previously didn't count, but as the CFPB reported on Wednesday, Edfinancial misrepresented those borrowers' eligibility.

The bureau found Edfinancial "harmed" borrowers by:

• Stating that FFEL borrowers could not receive PSLF
• Misrepresenting that FFEL borrowers were making payments toward PSLF before consolidating their loans into Direct loans — a requirement to qualify for the forgiveness program
• Misrepresenting which jobs qualify for PSLF
• And failing to mention PSLF to FFELb borrowers when describing loan forgiveness programs.

The CFPB is requiring Edfinancial to reach out to all FFEL borrowers to give them an opportunity to take advantage of the PSLF waiver before it expires, along with paying a $1 million penalty to the bureau's Civil Penalty Fund.

While the FFEL program was discontinued in 2010, millions of borrowers have continued making payments on those loans, which are privately-held. Chopra wrote in his statement that "Edfinancial is not a massive servicer, but its deceptive practices can have a massive impact on an individual borrower's financial future," which is why Federal Student Aid head Richard Cordray wrote a letter to borrowers following CFPB's actions to bring the issues to "immediate attention" of every company that handles FFEL borrowers.

"We have no reason at all to think that these issues – which dated from at least January 2017 through at least February 2021 – were unique to EdFinancial. To the contrary, they may well reflect the longstanding approach to how others were handling these same issues during the same period and perhaps even now," Cordray wrote. "FSA and CFPB can be expected to pursue further oversight of these issues, and every company should take pains to address them at once, so as to avoid penalties or other consequences," he added.

Mike Pierce, executive director of the Student Borrower Protection Center, told Insider that CFPB's actions were "a long time coming," and the words from both Chopra and Cordray might suggest all student-loan companies — not just Edfinancial — will be facing increasing enforcement measures.

"There's some language that feels a lot broader than just the single enforcement action or two that suggests that the CFPB is watching the whole student loan industry and watching its conduct far beyond just public service loan forgiveness, but really any place where student loan companies are cheating borrowers," Pierce said.