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Department of Education Is Unlawfully Withholding Records on Mismanaged College Grant Program, Lawsuit Says

March 28, 2018

Department of Education Is Unlawfully Withholding Records on Mismanaged College Grant Program, Lawsuit Says

Public Citizen Files FOIA Lawsuit to Obtain Documents on Grant Program Managed by Private Contractor

WASHINGTON, D.C. – The U.S. Department of Education must produce records relating to a federal grant program that has been mismanaged by the agency and private companies that service student loans, Public Citizen said in a lawsuit filed today in the U.S. District Court for the District of Columbia.

The Education Department has refused to adequately search for records that Public Citizen previously sought under a Freedom of Information Act (FOIA) request, the lawsuit states. Public Citizen submitted the FOIA request in August 2016 seeking reports to Congress, policies and findings of errors related to the Teacher Education Assistance for College and Higher Education (TEACH) Grant program, which may provide students pursuing teaching degrees with up to $4,000 a year.

Grant recipients agree to teach for four years following their graduation in high-need fields and serve in low-income schools and districts. If they do not fulfill the service requirements, their grants are converted into federal student loans. The Education Department and its contractors erroneously have converted many grants, and the agency has refused to hand over documents regarding its management of the contractors or its efforts to address erroneous conversions, the lawsuit states.

“Now more than ever, the public needs to know the full extent of the longstanding problems with the TEACH Grant program,” said Julie Murray, an attorney with Public Citizen who brought the case.

The Education Department contracts with FedLoan Servicing, a private company, to help it manage the TEACH Grant program. In 2015, the U.S. Government Accountability Office (GAO) reported 2,252 grants that had been erroneously converted into loans.

However, records that Public Citizen has obtained through its FOIA request so far demonstrate a far more alarming problem of erroneous conversions. One document indicates that FedLoan identified more than 15,000 TEACH Grants for more than 10,000 TEACH Grant recipients that it suspected were converted in error by a previous servicer. It concluded that at least 38 percent of the TEACH Grants converted to loans by this earlier servicer may have been converted in error.

Once a grant recipient’s grant is converted to a loan, it is difficult to correct the problem. The Education Department has not provided public information about its dispute resolution process for erroneous TEACH Grant conversions.

One Maryland teacher, Megan Gammill, whose grant was wrongfully converted into a loan by FedLoan in 2015, documented more than a year of interactions with at least 24 FedLoan representatives as she attempted to have her loan reconverted to a grant. Representatives for the company often failed to provide useful information, including clear information about the process the Education Department and FedLoan use to resolve disputes involving conversions.

During the dispute process, Gammill was required to begin paying down the wrongful loan, which appeared on her credit report, had a high interest rate and required monthly payments. In November 2016, 15 months after the erroneous conversion, the Education Department and FedLoan acknowledged that the conversion had been “in error” and reinstated the grant. Gammill then had to fight to be reimbursed for the money she had paid toward the wrongful loan.

“I was trapped in FedLoan’s bureaucracy for more than a year, and no one there seemed to care that they had saddled me with a high-interest loan that I should never have had,” Gammill said. “Teachers shouldn’t pay the price for FedLoan’s egregious mistakes.”

“The Department of Education has utterly failed to rein in student loan servicers like FedLoan,” Murray said. “In fact, it recently announced that it intends to make it harder for students to hold loan servicers accountable under state consumer-protection laws.”

A government study obtained today by NPR regarding TEACH Grant conversions concluded that 63 percent of TEACH Grant recipients who began their service obligations before July 1, 2014, had their grants converted to loans.

“The study simply ignores the enormous problem of servicer error,” said Murray. “The public findings do not reveal how many of the conversions were made in error, or determine whether TEACH Grant recipients whose grants were converted knew about or attempted to take advantage of an appeal process to reverse the conversion.”

The study notes as a data limitation the fact that 32 percent of a sample of TEACH Grant recipients whose grants were converted to loans indicated they had already completed the program requirements or were likely to do so.

“That’s more than a data limitation,” said Murray. “It’s a giant red flag that a significant number of recipients may have had their grants converted to loans through no fault of their own and believe they have met or could meet the certification requirements.”

Read more information about the case here.