I-Team: Company That Handles Billing For MEFA Student Loans Agrees To Pay $2.4 Million

BOSTON (CBS) - A national student loan servicer responsible for handling thousands of borrower accounts in Massachusetts has agreed to pay $2.4 million following an investigation by Attorney General Maura Healey's office, the WBZ I-Team has learned.

ACS Education Services (ACS), now known as Xerox Education Services, faced allegations that it failed to put struggling borrowers into income-based repayment plans to lower monthly payments. According to the investigation, the student loan servicer also engaged in harassing debt collection practices and charged excessive late fees.

"We need to send a message to loan servicers out there that we take this seriously and we want to make sure people play by the rules so that students don't get hurt," Healey told the I-Team. "The rules say you're supposed to put students into a payment plan they can afford."

ACS is the exclusive loan servicer for the Massachusetts Education Finance Authority (MEFA), a quasi-state agency that offers college financing to about 140,000 borrowers.

As first reported in October, the I-Team found more than 500 complaints against ACS filed with the Consumer Financial Protection Bureau, along with a class-action lawsuit that alleged a "scheme to keep borrowers in debt."

Prior to the September interview with the I-Team, a MEFA spokeswoman said the agency was unaware of the probe into the loan servicing company. MEFA has since met with the Attorney General's Office and worked with ACS to ensure protection of its borrowers.

"MEFA will not tolerate violation of law and will take all necessary steps to protect borrowers including a competitive process to review options for a new servicing firm," spokeswoman Martha Savery told the I-Team.

Under the terms of the settlement, a portion of the $2.4 million will be paid as restitution to Massachusetts borrowers who were unable to successfully obtain and remain on income-based repayment plans.

The loan servicer will also credit any late fee overcharges and is establishing a "borrower advocacy group" to assist applicants trying to arrange an affordable repayment plan based on their income.

In a statement, a company spokesman said the loan servicer "cooperated fully with the investigation and demonstrated an acceptance of responsibility."

"We look forward to continuing to work with clients to find other way to enhance our services to student loan borrowers," the statement said.

Student loan borrowers who would like to know if they are eligible for relief under the ACS settlement can call the Attorney General's Student Loan Assistance Unit hotline at 1-888-830-6277 or inquire online.

Healey said her office continues to investigate the practices of other student loan servicers and encourages borrowers to file complaints.

"This settlement is going to make students whole," Healey said. "And most importantly, it's going to make sure that this loan servicer has the right practices in place going forward so that students with these loans are treated fairly."

Ryan Kath can be reached at rkath@cbs.com. You can follow him on Twitter or connect on Facebook.