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Press Press Releases Court Rules that the Federal Government’s Largest Student Loan Contractor Is Not Above the Law

Court Rules that the Federal Government’s Largest Student Loan Contractor Is Not Above the Law

Maximus Will Have to Answer to Student Loan Borrowers Harmed By Company Practices

October 25, 2021 | WASHINGTON, D.C. — On Friday, a court ruled that Maximus Inc., a company that recently became the U.S. Department of Education’s largest student loan contractor, is not above federal consumer protection law and that the case brought by victims of its predatory and illegal debt collections practices may proceed to trial.

The lawsuit by the National Consumer Law Center and Justice Catalyst Law seeks to hold Maximus accountable for illegally collecting against borrowers who sought debt relief after being defrauded by for-profit colleges. In its ruling, the court denied Maximus’s motion to dismiss — an effort to shirk accountability. The company unsuccessfully claimed that although it was responsible for the improper withholding of tax refunds, it had not engaged in debt collection activity and that as a government contractor it is not accountable regardless.

In response SBPC’s Executive Director Mike Pierce issued the following statement:

“A federal judge confirmed that every student loan borrower is entitled to their day in court when they’ve been cheated by their student loan company. This victory, the National Consumer Law Center and Justice Catalyst Law made it clear that the law is on the side of the brave borrowers who demand justice when they are mistreated by companies like Maximus. 

This ruling also affirms the key role that individual borrowers and their advocates continue to play in the fight to protect borrowers and deliver justice. As FSA Chief Richard Cordray has made clear, this is a new era of accountability and no company is above the law.”

Background

Maximus is a multi-billion dollar publicly traded corporation that, over the course of the past decade, has been paid hundreds of millions of dollars by the U.S. Department of Education to manage student loan accounts for borrowers in default. 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

During its time as a contractor for the Department of Education, Maximus has been accused of a shocking range of abuses. For example, last year, Maximus’s mismanagement of the government’s student loan debt collection system led a federal judge to take the unusual step of holding then-Education Secretary Betsy DeVos in contempt of court for seizing wages of former for-profit college students in violation of a court order.

Last week, the Department announced that it had approved the transfer of Navient’s massive Direct loan portfolio to Maximus, adding approximately 5.5 million student loan borrowers to the nearly 8 million borrowers whose loans the company already oversees. Given the magnitude of Maximus’s new share of the federal student loan portfolio, today’s ruling is a welcome reminder that all companies, no matter how large, will be held accountable for their actions. 

Recent announcements from the Department’s Federal Student Aid (FSA) office also signal that we are entering a new era of accountability for student loan servicers like Maximus. In his statement regarding the transfer, FSA Chief Operating Officer Richard Cordray said that “Maximus will be held to the stronger standards for performance, transparency, and accountability that FSA included in its recent servicer contract extensions.”

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The Student Borrower Protection Center is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. The SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students.

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