By Amber Saddler and Ella Azoulay | June 2, 2023
In April, the U.S. Department of Education (ED) announced the award of its Unified Servicing and Data Solutions (USDS) program—anointing the companies it will pay to manage the economic futures of more than 43 million borrowers owing nearly $1.6 trillion in federal student loan debt for the next five years. Borrowers and advocates have anxiously awaited this update for nearly a decade as instances of servicer malfeasance and abuse of borrowers piled up on the watch of ED’s contractors. That these companies are up to the task of properly servicing student loans is more important than ever as the Administration plans to force tens of millions of borrowers into repayment for the first time in three years—whether they’ve recovered from the economic devastation wrought by COVID-19 or not.
The current cast of servicers is infamous for misleading scores of borrowers about their eligibility for debt relief and forgiveness programs, steering financially strapped borrowers into loan forbearance when they were eligible for Income-Driven Repayment (IDR) payments as low as zero dollars per month, improperly exposing borrowers to involuntary debt collection, and more. And the Administration’s plans to prematurely transition borrowers into repayment without cancellation create another layer of complications and potential harm as the system tends to falter especially at moments of borrower transfer.
Unfortunately, the companies ED has selected to lead us into the future will be familiar to beleaguered borrowers. Each of the five companies chosen has a proven track record of putting revenue over borrowers, so it is perplexing that ED appears to have ignored the specter of these companies’ past poor performance during its evaluation and selection process. The decision is perhaps explained in part by the limited stakeholder engagement throughout the selection process.
These USDS contracts come with critical responsibilities and extraordinary powers, the details of which will be discussed in a forthcoming blog. Student loan servicers are responsible for guiding borrowers through an array of federal programs designed to ease the burdens of loan repayment. Simultaneously, the consequences when servicers fail to follow through on their duties—or, worse, utilize abusive practices that actively harm borrowers—expose borrowers to default and a range of devastating consequences including the seizure of wages, income tax refunds, and public benefits.
ED’s chosen servicers will play a vital role in the future of the student debt crisis. Tens of millions of borrowers’ financial futures depend on these companies’ effective administration of the various federal student loan programs—and with great power should come great transparency and accountability. So let’s review the actors cast to usher in a new era of improved student loan servicing:
MOHELA
The Missouri Higher Education Loan Authority (MOHELA) is headquartered in Missouri, but it services federal loans for millions of borrowers across the country. Although it masquerades as an arm of the Missouri government (as was recently claimed by the state’s attorney general in its lawsuit challenging President Biden’s debt cancellation plan) MOHELA very much behaves and functions like its industry peers—as a private corporation. Over the years it has cut deals with private student lenders like SoFi—a company suing the Biden Administration to prematurely force 40 million borrowers back into repayment—and won massive federal contracts, biting off more than it could chew in the name of growing its profit margins. This is evidenced by unprecedentedly long call wait-times, floods of borrower complaints detailing misinformation and conflicting information, inaccurate record-keeping, wrongful relief denials for public service workers, and more. These are merely the latest in a series of MOHELA’s misdeeds. By putting borrowers last and lining executives’ pockets with exorbitant compensation first, MOHELA has become a multi-million dollar company and one of the most despised loan servicers in the market.
Maximus (“Aidvantage”)
Maximus is the biggest student loan servicing company in the world. Between its management of ED’s Debt Management Collection System (DMCS) for borrowers in default and its inheritance of Navient’s borrowers upon that company’s ignoble exit from the student loan servicing system in 2021, Maximus oversees the loans of more than 13 million borrowers owing nearly $450 billion. Unfortunately, the company’s student loan servicing record doesn’t merit the continuation of such a large federal investment. Maximus first enmeshed itself in the federal student loan system through its role as a private collections agency (PCA) for ED. Borrower complaints that Maximus had engaged in unfair and sloppy debt collection practices as a PCA were early foreshadowing of more recent claims that the company’s improper management of the DMCS caused illegal wage garnishment and seizure of federal tax refunds from low-income borrowers in default.
EdFinancial Services
Just last year, the Consumer Financial Protection Bureau found that between 2017 and 2021 EdFinancial “routinely and systematically” deceived student loan borrowers about their right to pursue loan forgiveness through PSLF. The difficulties public service workers have faced in attaining the government’s promise of loan cancellation for 10 years serving their communities are well-documented. Before ED’s temporary reform of the program through the “PSLF Waiver,” more than 98% of borrowers who sought forgiveness saw their applications denied due to servicer malfeasance and incompetence. EdFinancial’s USDS contract award is an invitation for more of the same borrower abuse.
Central Research, Inc.
Central Research, Inc. (CRI) is a debt collector that previously collected defaulted student loans on behalf of ED. CRI’s history as a collections agency is riddled with employee allegations of racially discriminatory practices. In fact, in 2022, the Department of Labor found it to be in violation of federal nondiscrimination law. Since CRI can’t seem to follow the law in regards to its own employment practices, the outlook seems bleak for student loan borrowers hoping it will follow consumer protection and loan servicing laws. Moreover, CRI has been sued several times for “violating consumer’s rights and [using] illegal and harassing communication tactics to attempt to coerce a payment from the harassed consumer.”
Nelnet
Although it has largely flown under the radar compared to its more infamous peers, Nelnet has its own troubling track record that makes its continued existence as a student loan servicer questionable. In particular, Nelnet has faced claims that its failure to complete timely recertifications of borrowers’ IDR plan applications resulted in borrowers losing progress towards forgiveness, unpaid interest on borrowers’ loans capitalizing, and borrowers being improperly placed into forbearance. The company has also been accused of defrauding borrowers and gaming the student loan system to increase its bottom line at taxpayers’ expense as revealed by a string of investigations led by New York’s Attorney General, ED’s Inspector General, and an ED whistleblower’s account. Further investigation also revealed an apparent attempt by the company to circumvent the New York investigation into its abusive practices by making financial donations to a political campaign under sketchy circumstances.
A Bleak Future for Borrowers
Upon review of the selected contractors, it’s clear that ED’s fanfare about a new and improved servicing experience for borrowers is overblown. Formulated by bureaucrats and technocrats determined to resist progress and exclude stakeholders, the “new” USDS program is a reminder for borrowers and advocates that ED is not listening. Borrower complaints and stories have been shared widely, data circulated, and countless lawsuits filed against these same old abusive and corrupt companies. The servicing system is badly broken, in no small part, because of them. And yet, ED has offered them another contract, funneling tens of millions of taxpayer dollars into the pockets of the same executives guilty of scamming borrowers to advance their own interests: widening profit margins. When will borrowers come first? As long as these servicers are around, it seems the answer is never.
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Amber Saddler is a Counsel at the Student Borrower Protection Center. Previously, she was a Dorot Fellow at the Alliance for Justice where she worked on issues related to federal judicial nominations and increasing access to the courts for marginalized people.
Ella Azoulay is the Research & Policy Analyst at the Student Borrower Protection Center. She joined SBPC from the Center for American Progress where she worked on higher education policy and advocacy.