We thought last year was a busy year in the student loan world (and it was) but this year was even busier. As The Institute for College Access and Success (TICAS) and others have reported, student debt burdens continue to increase. The Obama Administration announced a commitment this year to expand options for borrowers and to provide better outreach about relief programs. This was an important step, but there is still a long way to go in terms of providing real relief for struggling borrowers.
We started the year at the Student Loan Borrower Assistance Project with a January report on Sallie Mae, “A Government Created, Student Debt Fueled Profit Machine.” The report highlighted a number of themes that continued throughout the year including:
The need for servicing reform: Our November policy brief focuses on the need for reform in three key areas: 1) Incentives: The government should reward servicers that do the right thing for borrowers, 2) Borrower Relief: The government should ensure that there is real relief for borrowers (including the opportunity to switch servicers), and 3) Enforcement: The government should punish bad actors. So far, the Department of Education has focused mainly on financial incentives, making some positive changes, but there is still a long way to go. (Ben Miller of New America wrote a helpful summary on the key changes from September). The bottom line is that the servicing experience is still not consistently high quality for student loan borrowers as Bob Shireman wrote in a recent article.
The need to impose real sanctions when government contractors violate the law. We know a lot more about the government’s lack of oversight than we did a year ago. Among others, the Department’s Inspector General, the GAO and CFPB have issued audits and reports about problems with government and private student loan servicers, collectors and others. Just last week, the Department’s Inspector General issued this report about the ad hoc nature of the Department’s default prevention work and lack of overall structure or planning. The GAO’s March report was especially enlightening (and depressing for borrowers) about mismanagement in the Department’s collection process.
We know a lot more, but the key question is when this will translate into rigorous enforcement and punishment of bad actors. The Huffington Post staff has written numerous articles this year on this topic, including this article noting that the Department’s investigation of the government servicers may not amount to much. Other groups such as Jobs with Justice have also pushed hard, particularly focusing on Sallie Mae.
The growth of abusive actors taking advantage of problems in student loan servicing. The problems with servicing have unfortunately helped pave the way for an abusive student loan debt relief industry. Since we issued a report on this industry in 2013, the number of companies has grown and their tactics have become even more aggressive. The good news is that regulators are paying attention with the CFPB and Florida Attorney General taking enforcement action this month as well as Illinois Attorney General Lisa Madigan earlier this year.
The need for more information, data and study of student loan borrowing, debt burdens, servicer and collector performance. The Department has made more data available this year, particularly about servicing. This is good news, but as we wrote in a recent letter to Secretary Duncan, we still need a lot more public information to properly evaluate the government loan programs and contractor performance. Among other important data, we asked for:
- Information and data about why borrowers default and incidence of re-default
- Information about the Department’s commission and compensation system for servicers and collectors and performance evaluation metrics
- Copies of guidance to servicers and collectors other than the publicly available contracts
- More information about servicer performance
- Information about collection and servicer complaint systems and
- Information about referrals to Treasury offset.
We co-sponsored a symposium with Suffolk Law School in April focusing on the need to gather more data and research on key student loan issues. We need to know so much more! On that theme, Senators McCaskill and Warren and other U.S. senators sent a letter to the Department in July asking for in-depth information about servicers and collectors. Where is the response?
Senator Elizabeth Warren has helped shed light on the lack of government accountability and the harm caused to borrowers. Senator Warren highlighted this problem when she questioned Federal Student Aid Chief Business Operations Officer William Leith in September. Among other statements by Senator Warren that day: “Let me get this straight: You break the law. You don’t follow the rules. You treat the borrowers badly…and you all just renegotiated the contracts to make sure that across the portfolio [loan servicers] are going to make a little more money if nothing changes?”
The CFPB has also taken a lead in protecting consumers. Among other actions, the Bureau has called on private lenders to step up and provide relief to financially distressed borrowers. It remains to be seen whether the private loan modification programs announced so far will help many borrowers.
Deputy Treasury Secretary Sarah Bloom Raskin has added her powerful voice to the debate, focusing on the need for inter-agency cooperation to make sure that student loan borrowers know about their options and how to use them. We look forward to hearing more about a new in-house student loan debt collection pilot program set to begin next year at Department of Treasury.
Our March report No Lost Causes included ideas from former students, teachers, advocates and school officials about how to help low-income borrowers succeed. The borrowers profiled in the report overcame tremendous obstacles to make it through school and manage debt. Most of them, however, continue to struggle as do so many others.
Unfortunately, policymakers and regulators did not do nearly enough this year to help student loan borrowers get a fresh start if they default on their loans. The draconian collection system persists, as we documented in our September report Pounding Student Loan Borrowers. We also testified on this topic, calling for an end to the “collection agency experiment” at a Senate hearing in April.
There have been some improvements this year for borrowers, including new regulations for the loan rehabilitation program and greater outreach by the Department of Education to inform borrowers about income-based options. Yet the main goal of federal student aid–to foster equal access to higher education—is as elusive as ever. Among other concerns, racial disparities persist in higher educational attainment. (Much of this is connected to persistent racial inequalities in other areas, including early education and employment).
Perhaps some of these disparities will decrease as the abusive for-profit higher education industry continues to face greater scrutiny. We have seen a lot of new developments this year, including many major school chains closing or facing severe financial distress. Ultimately, the bad practices in this sector began to catch up with them, but give credit to the push from the federal government, state Attorney General offices, borrowers and their advocates and others. We issued this report in June with recommendations to improve state oversight of for-profit schools.
The biggest story at the moment is the demise of Corinthian schools and pending sale to Education Credit Management Corp. (ECMC). Yes, this is the same company that services and collects student loans AND is the government’s contractor using aggressive litigation tactics against student loan borrowers seeking bankruptcy relief. We signed this letter (on behalf of our low income clients) along with more than 45 other borrower advocates, civil rights groups and others expressing grave concerns about this sale. There are still a lot of unaswered questions, including whether the government will provide relief for borrowers stuck in the middle of this mess. (Check out this on-line campaign from Higher Ed Not Debt to get full refunds for Corinthian students).
The new year is just around the corner. There should be a new round of negotiated rulemaking beginning early in the year and of course a new Congress. We hope there will be a more aggressive crack down on student loan “debt relief” companies as well as comprehensive servicing and collection reform. We are taking a two week break here at Student Loan Borrower Assistance project and invite you to stay tuned in the new year. As always, keep sharing your experiences with us and Happy New Year.