A state agency that issues student loans has sued thousands of borrowers

Laquaysia Anderson-Jenkins walked into the Boston Municipal Court in Roxbury on a recent fall day because a state agency was suing her over a $12,000 student loan.

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She didn’t question the amount she owed. She’d fallen behind in payments after graduation in 2017, she says, challenged by gaps in work and other financial responsibilities.

Anderson-Jenkins just wanted to make things right, especially because her mother had co-signed the loan from the Massachusetts Educational Financing Authority. But even as she stood outside the courtroom, the 31-year-old mental health practitioner from Dedham said she wished she’d known before what she knows now: private loans offered by the state leave little room for mistakes.

“Their (payment) amounts are high. And if you miss one, they’re on attack mode,” the UMass Dartmouth graduate said. “You really want to get your degree and you feel like this is the only option, so you do it. And then after, you wish that you could have done more research to find grants and scholarships and things.”

Anderson-Jenkins is not the only one facing student debt regrets. The Massachusetts Educational Financing Authority has filed more than 3,300 lawsuits against borrowers in Massachusetts civil courts since 2015, and more than 1,300 of those in the past three years, according to data obtained by the GBH News Center for Investigative Reporting and analyzed by students from Boston University’s Faculty of Computing & Data Sciences’
SPARK! Program.

MEFA has sued borrowers for debts ranging from as little as $2,500 to well over $100,000, according to publicly available lawsuits and interviews with borrowers. Their stories appear on Reddit with headlines like, “I’m being sued by MEFA” and “Desperately seeking advice.”

Some borrowers, like Alicia Wedderburn of Dorchester, told GBH News that they felt unfairly treated by an aggressive debt collector — a situation made more frustrating because MEFA is an arm of the state.

Wedderburn, a veteran Boston Public Schools educator, says she was sued in 2022 by MEFA to pay back a $6,000 student loan that had gone into default. She says she had missed several payments and couldn’t persuade the agency to reinstate her payment plan, until a district court judge got involved.

“It’s not a situation where I’m trying to get out of having to pay the loan,’’ said Wedderburn, the first person in her family to graduate from college and who now holds two master’s degrees. “They were just very rude and nasty and just didn’t treat me with any kind of humanity. … I had no concept that this was the state that was doing this. That’s really disappointing.”

MEFA is a quasi-governmental agency. It was created by the Legislature in 1981 and is controlled by a government-appointed board, but it receives no direct state or federal funding; instead, it’s financed mostly through the sale of tax-exempt municipal bonds.

It’s one of the largest such agencies in the country, according to a Washington, D.C., based trade association called the Education Finance Council. And it’s growing. MEFA said in its most recent statement to bondholders that its program has
“expanded significantly,” including more borrowers, more participating institutions, and an increasing size of average loans.

The authority says on its website that it aims to help families, “plan, save and pay for college.”

But consumer advocates like Persis Yu, deputy executive director of the Washington, D.C.-based nonprofit Student Borrower Protection Center, say people should be aware of the risks of borrowing from agencies like MEFA that tout a public mission but work more like a private lender.

While the private student loan industry across the country is dwarfed by the size of federal loans provided to borrowers, some reports
show private loans prompt a higher rate of consumer complaints and
disproportionately affect low-income borrowers. Public loans also provide added
benefits like loan forgiveness and more flexibility in delaying payment when times get tough.

“[MEFA] has this veneer of being an entity of the state, and yet it has the same collection practices and it has the same inflexibility as these other more traditional corporate private student lenders,’’ said Yu. “Ultimately, there needs to be a move away from making low-income folks — or making students at all — rely on private debt for their financing.”

MEFA’s Executive Director Thomas M. Graf told GBH News that the agency itself advises student borrowers to first max out federal loans, because of better terms and rates. For students who need more, he said MEFA generally offers better rates than corporate lenders offering fixed interest rates and no application or origination fees.

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Graf says the nonprofit — with about $2 billion in outstanding debt — also tries to work with borrowers who are in trouble. However, he says, the agency needs to make sure as many people pay their debts as possible, to keep interest rates low.

“If a larger and larger number of people didn’t repay us, the loans wouldn’t be 5 to 8%, they’d be 7 to 12%,’’ he said. If MEFA fails to collect on its loans, he said, “somebody is going to pay for that in the future, future borrowers.”

GBH News worked with a team of student data scientists at BU who found the vast majority of people who were sued by MEFA lacked attorneys to defend themselves. Researchers could find no other collector of student debt who filed more lawsuits than MEFA in state courts.

The data has caveats. Local attorney Adam Minsky, who specializes in defending student loan borrowers, says it’s possible that some cases are not captured in the data. The records may not include cases when the original lenders transferred loans to other entities, or lawsuits were filed in other states. Federal lenders also are less likely to file suit because they generally can directly garnish wages or intercept tax refunds without a court order.

But based on the available data and his own experience, Minsky says MEFA is clearly a dominant player in state courts.

“The most common litigant that I see in Massachusetts on private student loans is MEFA,” he said. “It’s a sort of Frankenstein-type of entity.”

Some consumer advocates are concerned that, depending on the situation, MEFA can straddle its role — part government, part private lender — in ways that don’t benefit borrowers.

Stephen Zoulalian, for example, was sued by MEFA in 2022 over a student loan debt of about $128,000. The 30-year-old Jamaica Plain resident says he didn’t know he was in default until he received notice of the lawsuit in the mail.

Zoulalian says the legal claim was prompted by a misunderstanding: He had earned a bachelor’s degree but was staying in school to earn a master’s, and he hadn’t expected to start paying until he graduated from that program. Federal lenders typically defer undergraduate loans in that scenario. MEFA says it doesn’t defer loans for students heading into graduate school.

He obtained a lawyer and tried to persuade MEFA to reinstate his loan so he could pay it back on the same payment plan, but was rejected.

Zoulalian also attempted to persuade a judge to dismiss his case, arguing that the agency violated a state law that protects consumers from “unfair and misleading business actions.” But MEFA lawyers
successfully argued it couldn’t be sued because it was a government entity.

After spending tens of thousands of dollars in legal fees and suffering from months of stress, Zoulalian says he reached a settlement. He still has to pay the full loan, but over time, with no more interest adding to the amount.

Zoulalian says he’s still paying off his federal loans without problem.

“I don’t know what to tell a student that already has these [MEFA] loans, other than: Good luck. Don’t let them go into default, because these people are not on your side,” he said. ”They’re not going to look out for your interests.”

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MEFA also identifies as a governmental agency in bankruptcy hearings, despite issuing private loans.

Vermont attorney Joshua Cohen says this makes it harder in certain cases for people to file bankruptcy than if they had taken out a loan with a private lender. For this reason, Cohen says he advises borrowers to avoid organizations like MEFA when possible.

Cohen said many people heading to college don’t like to think that things could go awry. But more than 3,700 borrowers across the country have filed for bankruptcy citing MEFA as a creditor in the last three decades, the state agency says.

“Why should you be planning for bankruptcy when you take out a loan?” he said. “I got news for America: We live on a bell curve. Someone’s going to fail.”

The vast majority of undergraduate borrowers include a co-borrower, who can be a parent, grandparent or other adult, according to MEFA’s financial statements. Consumer advocates say these types of cases are contributing to a
growing number of older people struggling under the weight of student loans.

“When people get into trouble, they lose their job or they don’t make as much money as they were hoping or they encounter some sort of hardship, there are very few options to avoid default,’’ Minsky said. “It’s pretty common for these situations to ensnare entire families.”

Graf, MEFA’s executive director, said about 98% of borrowers pay on time. Less than 1% end up in litigation each year. When people go into default, he says the agency tries to work with borrowers. Unlike many other lenders, the state agency does not charge interest on a loan once it wins a court order for payment, and does not sell delinquent loans to third-party debt collectors.

“We’ll try to identify the borrower in the back of the room and say, ‘You know, let’s sit down,’’’ he said. “‘Can we work something out?’ So there really is an effort. This is back to the mission side. We really do try to work with people to figure out a way to do it.”

Anderson-Jenkins says she was able to avoid a court judgment to pay her debt outright. When she went to court in October, she had already spoken to MEFA’s attorneys about restarting a payment plan, already contributing more than $1,000.

She met an attorney at the courthouse who told the clerk that the state agency had reached an agreement with her.

Now Anderson-Jenkins has agreed to paying about $500 a month over time to settle the loan. She’s working two full-time jobs in counseling to cover her bills. She’s also been able to delay payments on her federal loans to help manage her finances.

She’s just trying to remain calm. She says people should be aware that MEFA loans come with a hitch.

“It’s hard for a lot of college students out here, especially low income, not coming from money, where they feel like this is their only option,” she said. “Right now I’m just trying to not be stressed out.”

Data collection for this story was provided by
Civera. Data analysis was provided by students from Boston University’s Faculty of Computing & Data Sciences’
SPARK! Program. Students Benjamin Coleman, Caslow Chien, Kenji Wagner, Hitaishi Hitaishi and Evan Park contributed to this report; the team was led by students Kevin Wu and Jessica Tong.