FedLoan Servicing, operated by the Pennsylvania Higher Education Assistance Agency (PHEAA), mishandled Public Service Loan Forgiveness (PSLF) applications for hundreds of thousands of federal student loan borrowers, resulting in multiple legal actions and settlements. The servicer failed to properly credit qualifying payments toward loan forgiveness, lost employment certification documents, placed borrowers in improper forbearance arrangements, and miscalculated income-driven repayment amounts—errors that delayed or prevented borrowers from achieving PSLF eligibility. For example, a borrower working for a qualifying employer might have made 100 qualifying payments toward the 120 required for forgiveness under PSLF, only to have FedLoan lose their paperwork or fail to count payments, forcing them to restart their progress toward forgiveness. The issues came to a head through multiple legal channels.
Massachusetts Attorney General secured a landmark settlement in February 2021 affecting over 200,000 Massachusetts borrowers, while a separate class action lawsuit filed by Pierce Bainridge in March 2019 alleged systematic mismanagement of the PSLF program. PHEAA has since exited the federal student loan servicing business entirely, transferring all loans to MOHELA at the end of 2022, and the U.S. Department of Education took direct control of PSLF management in July 2024. Borrowers affected by FedLoan’s failures may be eligible for compensation through the Massachusetts settlement or the Pierce Bainridge litigation, depending on their location and loan circumstances.
Table of Contents
- What Happened With FedLoan’s PSLF Processing Failures?
- The Massachusetts Attorney General Settlement
- The Pierce Bainridge Class Action Lawsuit
- Who Was Affected and How Do You Know If You Qualify?
- Common PSLF Problems Under FedLoan’s Management
- Available Remedies and Compensation
- The Current State of PSLF After FedLoan’s Exit
- Conclusion
What Happened With FedLoan’s PSLF Processing Failures?
FedLoan Servicing operated as the primary federal student loan servicer for borrowers pursuing Public Service Loan Forgiveness, a program designed to forgive remaining loan balances after borrowers made 120 qualifying monthly payments while working for eligible employers—primarily government agencies and nonprofit organizations. However, FedLoan systematically failed at nearly every step of the PSLF process. The servicer did not properly credit borrowers’ qualifying payments, routinely misplaced or lost employment certification forms that borrowers submitted to verify their job eligibility, placed borrowers into forbearance periods that did not count toward the 120-payment requirement, and made calculation errors in income-driven repayment amounts that affected payment eligibility. These were not isolated errors affecting a handful of borrowers.
The Massachusetts Attorney General’s investigation revealed that more than 200,000 Massachusetts borrowers alone experienced PSLF-related errors under FedLoan’s management. Borrowers who should have been approaching loan forgiveness found their payment count reset or incomplete, while others discovered their employment certifications had disappeared from FedLoan’s records despite submitting them months or years earlier. The scope and pattern of failures revealed a systemic problem in how FedLoan managed PSLF cases, not administrative glitches that affected individual accounts. One concrete consequence: A Massachusetts nurse working for a public hospital who submitted employment certification to FedLoan in 2015 might have believed her payments were counting toward PSLF forgiveness, only to learn in 2019 that FedLoan had lost her certification form and could not verify her employer eligibility. Rather than counting the four years of payments she had made, she would have to resubmit her paperwork and effectively restart her PSLF clock—losing years of progress toward the 120-payment threshold.
The Massachusetts Attorney General Settlement
In February 2021, Massachusetts Attorney General Maura Healey announced the first major enforcement action against a federal student loan servicer regarding PSLF mismanagement. PHEAA agreed to provide relief to over 200,000 Massachusetts borrowers who had been harmed by its handling of PSLF applications, employment certifications, and payment accounting. The settlement imposed no fines or civil penalties on PHEAA—the remedy focused entirely on compensating borrowers rather than punishing the servicer. The settlement offered two primary forms of relief. First, PHEAA would attempt to correct borrowers’ accounts to restore them to the correct PSLF eligibility status, reviewing their payment history, re-crediting payments that should have counted, and reinstating PSLF progress that had been improperly reset or lost.
For borrowers whose accounts could not be corrected—either because the original records were destroyed or because the damage was irreversible—PHEAA would provide monetary compensation calculated based on the number of months each borrower had lost toward the 120-payment PSLF requirement. However, borrowers needed to take action to claim this relief. The settlement did not automatically distribute compensation; instead, affected Massachusetts borrowers had to file claims demonstrating that they had experienced PSLF-related errors under FedLoan’s management. This required documented evidence such as proof of employment, submission records of employment certifications, payment history statements, and correspondence with FedLoan documenting the issues. Many borrowers were never notified of the settlement or failed to submit claims within the window, meaning they received no relief despite being harmed.
The Pierce Bainridge Class Action Lawsuit
In March 2019, Pierce Bainridge filed a separate class action lawsuit against FedLoan Servicing and Nelnet, alleging a pattern of mismanagement and fraud in how the companies administered the PSLF program. The lawsuit named specific categories of harm: failure to credit qualifying payments toward the 120-payment requirement, loss of employment certification forms, improper placement into forbearance status (where payments do not count toward PSLF), and systematic miscalculation of income-driven repayment amounts that affected borrowers’ monthly payment obligations and PSLF eligibility. Unlike the Massachusetts settlement, which was negotiated between state authorities and PHEAA and affected only Massachusetts borrowers, the Pierce Bainridge lawsuit was designed as a national class action covering all federal borrowers who experienced PSLF mismanagement by FedLoan Servicing and Nelnet nationwide.
The lawsuit alleged that these failures were not limited to isolated cases but represented systematic problems in how the companies processed PSLF applications. By including Nelnet, the lawsuit also targeted another major servicer that had contracted with FedLoan and bore responsibility for some of the failures. The Pierce Bainridge litigation has continued for years without reaching a final settlement, meaning many borrowers affected by FedLoan’s national mismanagement have not yet received compensation. For borrowers outside Massachusetts or those whose circumstances do not fit the Massachusetts settlement’s scope, the Pierce Bainridge lawsuit represents the primary avenue for pursuing compensation—though the uncertain timeline and ongoing litigation mean recovery is not guaranteed.
Who Was Affected and How Do You Know If You Qualify?
FedLoan Servicing handled federal student loans for millions of Americans, and anyone who had loans serviced by FedLoan between roughly 2012 and 2022 (when PHEAA transferred its loan portfolio to MOHELA) could potentially have been affected by the PSLF processing failures. However, not every FedLoan borrower experienced the specific harms alleged in the Massachusetts settlement or the Pierce Bainridge lawsuit. To determine your eligibility, you need to identify whether you experienced one of the documented failures. Signs that you may have been harmed include: discovering that FedLoan did not count payments you believed were qualifying toward PSLF, having employment certification forms disappear after submission to FedLoan, being placed into forbearance without your request or consent, finding that your payment count reset unexpectedly, or learning that your income-driven repayment amount was calculated incorrectly, affecting your PSLF progress. If you worked for a qualifying PSLF employer (government agency, nonprofit, military) while your loans were serviced by FedLoan and encountered any of these issues, you likely have a claim.
Importantly, the errors may have occurred years in the past; you do not need to currently have loans serviced by FedLoan to file a claim for past harm. For Massachusetts residents specifically, the Attorney General’s settlement website contained a claims process and documentation requirements. For borrowers nationally, the Pierce Bainridge class action tracking information would typically be available through the class administrator or attorney information associated with that case. However, a limitation exists: if you were unaware of the harm at the time it occurred—for example, if you only discovered years later that FedLoan had lost your employment certification—you may face challenges documenting the original submission. This underscores the importance of keeping personal copies of all documents you submit to loan servicers.
Common PSLF Problems Under FedLoan’s Management
Beyond the documented failures in the settlements and lawsuits, borrowers reported numerous patterns of mismanagement specific to FedLoan’s handling of PSLF. Many borrowers submitted Employment Certification Forms (ECF) only to find that FedLoan claimed never to have received them, forcing resubmission months or years later and disrupting their payment count. Others discovered that FedLoan had miscategorized their employment—marking them as ineligible for PSLF even though they worked for clearly qualifying organizations—and had to spend considerable time and effort correcting the records. Another widespread problem involved forbearance abuse. FedLoan placed some borrowers into forbearance periods without their explicit request, either as a default response to a missed payment or as an administrative action. During forbearance, payments do not count toward the 120-payment PSLF requirement.
Borrowers sometimes did not realize they were in forbearance until years later when they discovered their payment count was far lower than expected. This is particularly troubling because borrowers may have been making payments in good faith, believing they were accumulating PSLF credit, when in fact they were in a forbearance status where their payments had no impact on their loan forgiveness progress. A third category of problems involved income-driven repayment plan miscalculations. FedLoan calculated borrowers’ monthly payment amounts incorrectly under income-driven plans, sometimes charging too much and sometimes charging too little. These calculation errors affected borrowers’ ability to afford their loans and, in some cases, disqualified them from PSLF eligibility temporarily because their loans fell out of compliance. Crucially, many borrowers did not discover these calculation errors until they approached the 120-payment milestone or attempted to apply for loan forgiveness and found their accounts in disarray.
Available Remedies and Compensation
Compensation for FedLoan’s PSLF failures took different forms depending on the legal avenue. Through the Massachusetts Attorney General settlement, eligible borrowers received either account corrections (restatement of their payment history to reflect qualifying payments that had been missed or miscounted) or monetary compensation. The monetary awards were calculated based on the number of months lost toward the 120-payment PSLF requirement; for example, a borrower who lost 36 months of PSLF credit due to FedLoan’s mismanagement might receive compensation equivalent to three years of their monthly loan payment amount. For borrowers pursuing claims through the Pierce Bainridge class action, the remedy structure would depend on the final settlement terms, which had not been finalized as of 2024.
Class action settlements typically offer similar choices: direct account correction (if possible), monetary compensation, or in some cases, expedited loan forgiveness for class members who had already made a substantial portion of the required 120 PSLF payments. The advantage of class action compensation is that it applies nationally, not limited to one state; however, the timing is slower because the litigation must conclude before distribution occurs. One important limitation: even with settlement compensation, not all borrowers recovered to the same extent. A borrower whose employment certification was lost in 2015 and who had by 2021 already been approved for PSLF based on corrected records might receive only a token amount (representing months of delay and hardship) rather than full restoration of lost time. Conversely, a borrower who lost all PSLF progress due to FedLoan’s errors and who could not work in a qualifying field again could not be fully compensated for the lost opportunity to achieve forgiveness through a higher-paying private sector job later.
The Current State of PSLF After FedLoan’s Exit
PHEAA exited the federal student loan servicing business at the end of 2022, transferring its entire portfolio of loans—including all FedLoan borrowers—to MOHELA (Missouri Higher Education Loan Authority). This transition removed FedLoan from active management of federal loans, though it did not resolve existing harm or undo past mismanagement. Borrowers whose loans moved from FedLoan to MOHELA had to resubmit employment certifications and re-verify their PSLF eligibility, adding another administrative burden to borrowers who had already experienced years of problems. In July 2024, the U.S. Department of Education took a more radical step, centralizing PSLF application processing directly under federal management rather than relying on individual servicers to manage PSLF cases.
This represents a structural shift away from the model that had enabled FedLoan’s failures. By removing PSLF processing from servicer control, the Department reduced opportunities for servicer errors like lost paperwork, miscalculations, or improper forbearance placement. Borrowers now submit PSLF applications directly to the federal government rather than to their servicer, theoretically reducing the risk of future processing failures caused by servicer mismanagement. However, this does not erase the past. Borrowers who lost years of PSLF progress under FedLoan still face the reality of delayed forgiveness, even if future borrowers benefit from more reliable processing. The structural change also means that borrowers whose PSLF claims were denied or delayed by FedLoan cannot point to current servicer failures to remedy the situation; the focus shifts to whether the federal government can correct the historic record.
Conclusion
FedLoan Servicing’s systematic failures in processing Public Service Loan Forgiveness applications harmed hundreds of thousands of borrowers across the United States. Through the Massachusetts Attorney General settlement and the Pierce Bainridge national class action lawsuit, affected borrowers have legal pathways to seek compensation, either through account correction or monetary awards. However, recovery requires taking action—filing claims, documenting harm, and navigating settlement processes that are not always widely publicized or easily accessible.
If you worked for a qualifying PSLF employer while your loans were serviced by FedLoan and experienced processing failures—lost employment certifications, unrecognized payments, improper forbearance placement, or payment miscalculations—you should investigate your eligibility for relief. Contact the Massachusetts Attorney General’s office if you live in Massachusetts and the settlement period is still active, and research the Pierce Bainridge class action to determine your status in the national litigation. The shift to federal PSLF processing has improved future reliability, but the lesson remains: keep personal copies of all documents you submit to loan servicers, monitor your payment count regularly, and escalate discrepancies immediately rather than assuming the servicer will correct errors on its own.