A New Debt Collection Lawsuit Gives us a Glimpse at the Future of Student Loan Servicing for Tens of Millions of Borrowers
By Mike Pierce | February 12, 2020
Today, Jaimaria Bodor, a former Corinthian Colleges student, initiated a lawsuit against a big student loan company, Maximus, Inc., for illegally seizing her tax refund. In her complaint, filed by our partners at the National Consumer Law Center and Justice Catalyst Law, she alleges that the company ignored its duty to stop collecting against her—a right she is guaranteed under rules that protect borrowers defrauded by for-profit colleges. In the process, her student loan company violated a federal consumer protection law, known as the Fair Debt Collection Practices Act.
Student loan companies are sued for these kinds of abuses nearly every day—a sad fact of life for tens of millions of borrowers trapped in our current, badly broken student loan system.
But Ms. Bodor’s case is different. Unlike embattled student loan giants Navient and FedLoan Servicing, Maximus is a different kind of student loan servicer—one that never identified itself to Ms. Bodor because it operates as if it were the U.S. Department of Education. As far as Ms. Bodor could figure out on her own, the government gave the order to seize her tax refund.
For the nearly 8 million Americans whose student loan account is being managed by Maximus, they too, have never heard the company’s name. So when things go wrong—whether that is lost paperwork, customer service dead ends, or a company’s outright refusal to follow the law—borrowers don’t know where to turn for justice and have no idea who is to blame.
This is why Ms. Bodor’s groundbreaking lawsuit is so important. The law is clear. Maximus is not the government. It is a multi-billion dollar publicly traded corporation, paid hundreds of millions of dollars to manage student loan accounts for borrowers in default. In doing so, it does not get a free pass to break the rules. And, as Ms. Bodor’s case demonstrates, Maximus has broken the rules, including acting outside the bounds of the government’s instructions. Companies like Maximus can and should be held liable, independent of (and in addition to) any effort to hold Betsy DeVos accountable.
We know from recent court filings and other public records that Maximus has routinely ignored important consumer protections that require it to bring the gears of its debt collection machine to a halt. In thousands of cases, it did so in violation of a court order from a federal judge in California—a shocking breach that caused the court to hold Secretary DeVos in contempt.
The victims of Maximus’ abuses are borrowers hit hardest by the student debt crisis— defrauded by for-profit schools, denied debt relief by the Trump Administration, and now cheated out of their last dollar by a rogue government contractor.
The victims of Maximus’ abuses are borrowers hit hardest by the student debt crisis— defrauded by for-profit schools, denied debt relief by the Trump Administration, and now cheated out of their last dollar by a rogue government contractor.
Maximus: the Largest Student Loan Company You’ve Never Heard of
Maximus handles the loans of nearly 8 million student loan borrowers under contracts with the U.S. Department of Education valued at more than $800 million. In this role, Maximus manages the servicing platform used for all student loan borrowers in default, known as the Default Management Collections System (DMCS). In addition to maintaining all records and information related to defaulted loans, DMCS designates individual borrowers for tax refund seizure and social security offset. Under a separate contract, Maximus also manages the call centers responsible for assisting federal student loan borrowers in default, known as the U.S. Department of Education Default Resolution Group.
Ms. Bodor’s case is just the latest allegation of abuse against Maximus. For example, in 2014, the Education Department’s Inspector General issued a scathing audit, chastising the agency for failing to hold Maximus accountable when it failed to address serious deficiencies in the DMCS system.
Yet until today, no borrowers had made an effort to hold Maximus directly accountable for denying their rights or ignoring a direct order from the government. This action demonstrates that even when a company is given the power to operate in the name of a government agency, it cannot escape justice.
Our colleagues at the Project on Predatory Student Lending at the Legal Services Center of Harvard Law School and Housing & Economic Rights Advocates are doing important work to hold Secretary DeVos and the Trump administration accountable for illegally collecting on the tens of thousands of defrauded borrowers. But efforts to seek justice for student loan borrowers must not stop there. It is equally important that the entire student loan industry—including the government contractors at the center of the student loan system — be held to account for their abuses.
Demanding Justice From All Contractors Who Operate as the Department of Education
Millions of borrowers in default are getting a preview of the future of the student loan servicing system that is in store for the rest of us.
In 2017, the Trump Administration announced “NextGen”—-a multi-billion dollar overhaul of the technology and vendors that handle more than one trillion dollars in student loans owed by tens of millions of borrowers across the country. As part of an effort to modernize a badly flawed loan repayment process, the Trump Administration embraced a proposal to “white label” this system—allowing every contractor that interacts with student loan borrowers to operate in the name of the federal government. Every company would look like Maximus and borrowers wouldn’t know who they were dealing with.
At the same time, Betsy DeVos engaged in an unprecedented campaign to obstruct efforts by federal and state regulators to oversee the student loan industry—one that has created a trillion dollar black hole in the center of our economy.
Taken together, these actions place incredible power over the economic lives of tens of millions of people solely in the hands of the U.S. Department of Education. If recent history is any indication, the Department of Education is woefully unsuited to this task.
If Betsy DeVos gets her way, in the future only the Department of Education will know which private-sector firms are responsible for mismanaging borrowers’ accounts, and only the Department of Education will have the tools to hold these companies accountable. Under NextGen, borrowers, regulators and law enforcement officials will be left on the outside looking in.
This means future borrowers unlawfully denied loan forgiveness will have no choice but to trust DeVos to do the right thing, even as she works to eliminate the program. It also means future military borrowers who have been denied protections earned through their service will have no recourse, except to hope that the Department of Education will finally stand up for their rights. And it means that if DeVos stays on her current course, tens of millions of future borrowers may never have the chance to band together to have their claims heard in open court.
Ms. Bodor’s case shows that fighting back against the private sector firms that abuse borrowers across the student loan system is possible, even when these companies operate in the name of the government. Tens of millions of student loan borrowers depend on litigants like Ms. Bodor to fight– and win– these cases.
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Mike Pierce is the Policy Director and Managing Counsel at the Student Borrower Protection Center. He is an attorney, advocate, and former senior regulator who joined SBPC after more than a decade fighting for student loan borrowers’ rights on Capitol Hill and at the Consumer Financial Protection Bureau.