Student loan servicer to pay $2.4 million to settle multiple claims of wrongdoing

A national student loan servicer has agreed to pay $2.4 million to settle a lawsuit brought by Massachusetts on charges it harassed borrowers and charged excessive late fees to cash-strapped students, the state Attorney General’s Office announced Tuesday.

The company, Xerox Education Services, formerly ACS Education Services, “charged some borrowers excessive late fees, failed to protect some active-duty service members as required by federal law, and made excessive phone calls to borrowers,” Attorney General Maura Healey said.

This is the first significant settlement with a major student loan servicer by a state attorney general, the AG’s office said.

“To address this student debt crisis, we need students to be on repayment plans that will help them succeed, not fall further into debt,” Healey said in a news release. “ACS failed to meet this standard and regularly undermined the opportunity for students to access appropriate repayment plans. This conduct increases the already high cost of education, damages credit and prevents students and their families from achieving long-term economic security.”

An initial $400,000 will go to about 800 borrowers who applied for but were unable to enroll in, or remain on income-based repayment plans through ACS.

The Attorney General’s Office said it was working to identify more borrowers who have been harmed by the company’s practices.

In December 2015, the state launched an investigation into certain student loan servicing practices by ACS. It charged that the company had failed to properly process student borrowers’ applications for federal loan relief associated with the Income-Based Repayment Plan established by the Higher Education Act.

The Attorney General’s Office also charged that ACS violated the state’s debt collection regulations by contacting students more than twice a week and did not investigate credit reporting disputes, which led to inaccurate information about students being sent to credit reporting agencies.

The company did not admit blame, but cooperated with the attorney general’s investigation and is enacting changes to its loan servicing practices, Healey’s office said.