By Ben Kaufman | April 12, 2021
With more than $1.7 trillion in student loan debt now outstanding and the average borrower owing more than $35,000 in student loans, it’s easy to think of the student debt crisis as simply being about ever-rising balances. But this crisis is also something much more sinister—a consumer protection crisis where a wide array of predatory, unscrupulous, and at times harmfully incompetent actors add insult to injury for millions of student loan borrowers. These firms have imposed billions of dollars in needless interest on student loan borrowers, driven millions into unnecessary distress and default, invented novel products to hide well-known risks, defrauded borrowers out of the promise of higher education, and so much more.
Like all aspects of the student debt crisis, these companies’ conduct hurts borrowers with low incomes and people of color the most. Worse, these companies and their executives have enjoyed windfall profits while borrowers have been left to pick up the pieces, with corporate chiefs raking in seven-figure bonuses at the same time they outright tell borrowers that they’re on their own.
Some of the most notorious actors profiting off the student debt crisis are student loan servicers. These companies are tasked with the management and collection of student loans owned by private companies or, more often, the federal government—and they are paid hundreds of millions of taxpayer dollars in return for doing so. But a history of lawsuits, shocking investigations, and ruined financial lives makes clear that these companies harm borrowers from the day they get their first bill to the moment they pay off their last loan. Government auditors, inspectors general, regulators, consumer advocates, champions for servicemembers, academics, labor unions, state attorneys general, legislators, and senior officials across successive presidential administrations have all warned that student loan servicers consistently fails borrowers.
When considering how broken the student loan system is for tens of millions of people across the country, it is impossible to ignore that some of the most acute harms for student loan borrowers arise from the very same firms tasked with delivering their rights and protections. Student loan servicers’ track record of misconduct and failure includes the following:
- Cheating borrowers in financial distress by denying millions of the most vulnerable borrowers critical protections against financial ruin and saddling them with billions of dollars in additional debt;
- Harming servicemembers and veterans by blocking them from the key consumer financial protections they earned through service to our country;
- Cheating public service workers by denying teachers, nurses, and others critical loan protections they were promised in exchange for giving back to their communities, including by misleading these public service workers about their eligibility or mismanaging borrowers’ accounts;
- Tricking teachers into forfeiting grants intended to encourage service in struggling schools by mishandling paperwork, deceiving teachers about required deadlines, and mismanaging teachers’ student loan accounts;
- Forcing older borrowers into years of unexpected debt by denying parents and grandparents a promised lifeline after being required to cosign for student loans that imperiled their retirement security;
- Ruining borrowers’ credit though illegal furnishing errors, harming disabled borrowers—including veterans—and others who were legally entitled to loan discharge;
- Denying borrowers access to critical income-driven repayment plans as they struggle to access affordable payments promised under federal law, leaving borrowers sucked into a bureaucratic black hole littered with illegal denials and misleading information about eligibility;
- Blocking borrowers from COVID relief through systematic breakdowns in the implementation of the CARES Act and strikingly insufficient measures to help borrowers during the pandemic;
- Driving illegal late fees that leave borrowers struggling under unaffordable, ballooning balances all in the service of companies’ bottom line;
- Helping shadowy industries thrive by managing loans originated in the opaque market for “shadow student debt,” often ignoring key state licensing laws and uplifting predatory schools while harassing borrowers for high-cost, high-risk loans;
- Sticking students with improper charges by using faulty enrollment data to calculate interest expenses and layering illegally added interest onto borrowers’ loan balances;
- Saddling borrowers with balloon payments after failing to correct account errors, often while simultaneously steering borrowers away from long-term solutions that would ensure their eligibility for loan forgiveness; and
- Pulling payments without permission from borrowers bank accounts and failing to collect borrowers payments even when borrowers signed up to pay automatically.
Unfortunately, these abuses are just the tip of the iceberg. But the chorus of voices calling for reform is growing. This week, the CEOs of some of the companies at the center of this crisis will be called to testify before the Senate regarding our broken student loan system and the role they and their firms have played in perpetuating borrower harm. The two student loan executives scheduled to attend the hearing—Navient CEO Jack Remondi and PHEAA CEO Jim Steely—oversee companies that cumulatively service more than three quarters of a trillion dollars of student loan debt. This hearing will help shed critical light on the widespread breakdowns across the market these firms operate in and will highlight the desperate need to provide real relief to borrowers who have been trapped in this broken system.
Every day, tens of millions of borrowers slog through repayment of their student loans. These borrowers cannot be sure that even if they watch their every step, they will not be knocked off track by industry malfeasance. Their only mistake was taking on debt to chase the American dream—the same thing they were told was the right and responsible thing to do. In return, these borrowers have been handed a student loan nightmare.
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Ben Kaufman is the Head of Investigations and a Senior Policy Advisor 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.