Setting the Record Straight: ED’s Failures in Student Borrower Protection

By Ben Kaufman | November 26, 2019

In October, the Department of Education (ED) and its Secretary, Betsy DeVos were held in contempt and fined $100,000 for violating a court order preventing them from illegally collecting on defrauded students’ debts. Noting that ED had breached that order 16,000 times, the judge in the case described herself as “extremely disturbed” and “astounded” by ED’s actions. Then, less than two weeks later, ED suddenly ceased efforts to get the fine dismissed and admitted that it might have illegally collected loans from 14,000 more borrowers than it had originally disclosed. Moreover, the Department noted that it still could not “fairly represent that [it was] in ‘full compliance’ with the Court’s preliminary injunction,” and that it still had not yet “remediated the harm to all affected borrowers.”

When pressed on the issue in the days before the contempt order, however, Secretary DeVos tweeted “Loan servicers made an error on a small # of loans. We know & we’re fixing it.” DeVos’s dismissiveness in the face of such dire mistakes is only the latest in a history of deflection and denial from the Department of Education in relation to student debt.

ED has long claimed to have everything under control when it comes to the role it plays in the $1.6 trillion student loan market—all while rampant breakdowns and illegal practices have added insult to injury for millions of Americans with educational debt. It’s time for policymakers to face up to the facts, and for strong, independently enforceable student borrower protections to be established at every level of government.

We have compiled ED’s failures in student borrower protection, as well as government watchdogs’ efforts to bring these actions to light, to create a new resource for policymakers and advocates to help avoid mistakes of the past and chart a better path forward. Citing 44 publications from the Government Accountability Office (GAO), the Department of Education’s Inspector General (ED IG), the Department of the Treasury, and the Senate Committee on Health, Education, Labor, and Pensions, our analysis shows the reality of an agency that has proven ill-equipped to oversee the consumer debt market that it dominates. The distress that millions of student loan borrowers have subsequently endured underscores the need for new rules to hold predatory actors to account, as it’s clear that those borrowers will only be disappointed if they hold their breath waiting for reform to come from ED.

SLLI_Assessments-of-ED_A-Review

The SBPC analysis comes as ED has formally cited its supposed success at industry oversight in an effort to block states from stepping in to protect student loan borrowers. For example, ED’s March 2018 statement on preemption asserts:

[T]he Department continues to oversee loan servicers to ensure that borrowers receive exemplary customer service and are protected from substandard practices. First, the Department monitors servicer compliance with the Department’s contracts, which include requirement related to customer service. 

In making this argument, the Department ignores a 2016 report from the GAO titled “Education Could Improve Direct Loan Program Customer Service and Oversight,” a 2015 report finding that ED’s actions left borrowers with “inconsistent and inefficient services,” and a 2018 follow-up report showing that ED ultimately implemented only a quarter of the GAO’s recommendations related to student lending.

Nonetheless, ED’s statement on preemption continues:

Second, the Department’s procurement and contracting requirements incentivize improved customer service by allocating more loans to servicers that meet performance metrics such as high levels of customer satisfaction and by paying servicers higher rates for loans that are in a non-delinquent status such as those enrolled in an income-driven repayment plan. Poor-performing servicers lose loans in their portfolio to better-performing servicers. (emphasis added)

It’s true that ED has powerful tools to incentivize good behavior among student loan companies, but that only makes it more disappointing that ED chooses not to use them. In a 2019 audit, for example, ED’s Inspector General (IG) found that “FSA management rarely used available contract accountability provisions to hold servicers accountable for instances of noncompliance,” and that “[b]y not holding servicers accountable for instances of noncompliance with Federal loan servicing requirements, FSA did not provide servicers with an incentive to take actions to mitigate the risk of continued servicer noncompliance that could harm students.”

In fact, the record shows that ED has made a habit of turning a blind eye to abuses across the student loan industry:

  • ED has ignored widespread violations of key consumer protections for military servicemembers, for example, with the ED IG finding that “FSA did not make any effort to require the [loan servicers] to identify and correct all potential instances of incorrect denials of the [Servicemembers Civil Relief Act] interest rate cap.”
  • ED has similarly overlooked borrowers who were harassed by debt collection agencies, with its IG concluding that “FSA did not effectively monitor borrower complaints against PCAs and ensure that corrective actions were taken.”
  • ED has brazenly brushed off public school teachers whose TEACH grants were unjustly converted to loans, with the GAO finding that the Department “has not systemically reviewed the cause of” more than two thousand improper conversions and that ED “lacks reasonable assurance that it has taken steps to minimize future erroneous conversions.

Finally, ED’s statement on preemption concludes:

Third, FSA maintains a Feedback System, which includes a formal process for borrowers to report issues or file complaints about their loan experiences, including problems with servicing. Borrowers may also elevate complaints to the FSA Ombudsman Group—a neutral and confidential resource available to borrowers to resolve disputes related to their loans. The Department seeks to promote exemplary customer service for student loan borrowers, consistent with the framework Congress established for the Federal student loan programs. (emphasis added)

That claim of “exemplary” service ignores the 99 percent program rejection rate faced by the nearly one million borrowers pursuing Public Service Loan Forgiveness (PSLF), even after the GAO, the ED IG, and officials at the Department of the Treasury publicly warned in 2014, 2015 (1, 2, 3), 2018 (1, 2), and 2019 that errors in ED’s management could put borrowers’ receipt of PSLF at risk. And that’s just the tip of an unfortunate iceberg—ED’s claimed success also ignores its failures to oversee its general contracting of student loan servicing, the implementation of income-based repayment programs, the collection of defaulted-on educational debt, the whole of the for-profit college space, and countless other aspects of student lending.

Of course, America’s 45 million student loan borrowers do not need a compilation of 44 government reports to know that ED’s regime of self-regulation has failed. To countless borrowers, it is already clear that they have fewer rights, fewer protections, and fewer mechanisms to demand accountability than consumers of any other form of retail credit, all while the Department of Education has proven unwilling or unable to have their backs.

What these borrowers need is a set of independent, transparent, and robustly enforceable statutory and regulatory requirements for actors in the student loan industry. Borrowers need a comprehensive twenty-first century consumer protection infrastructure; they need it to involve safeguards at the state, local, and federal level; and they need it to be powerful enough to ensure that predatory companies will finally be held to account. Plus, borrowers need these protections to arrive before another 44 federal oversight reports can be written documenting ongoing abuses in the student lending market.

The resource highlighting ED’s failures can be found here: https://protectborrowers.org/wp-content/uploads/2019/11/SLLI_Assessments-of-ED_A-Review.pdf

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Ben Kaufman is a Research & Policy Analyst at the Student Borrower Protection Center. He joined SBPC from the Consumer Financial Protection Bureau, where he worked as a Director’s Financial Analyst on issues related to student lending.