United States Senators Blumenthal, Murray and Warren sent a letter to the Department of Education in May requesting information about the Department’s reviews of servicers’ compliance with the Servicemembers Civil Relief Act (SCRA). In announcing the review last year, Secretary of Education Duncan said that every option would be on the table with regard to the contract status of Navient (formerly Sallie Mae) and the other servicers. When the Department finally released the results of its investigation in May 2015, officials stated that borrowers were incorrectly denied the required SCRA interest rate cap in less than 1 percent of cases.
The Senators decided to dig deeper, producing a detailed analysis of the Department’s reviews. In this analysis released last week, the Senators raise serious doubts about whether the Department adequately reported the results of the reviews. Among other issues, the Department reviews included only a small subset of the types of SCRA violations identified in the Department of Justice and FDIC enforcement actions. According to the Senators, “The Department of Education based its conclusion on an examination of a tiny fraction of the relevant cases.”
In addition, the Senators raised questions about how the Department characterized its findings. Department reviews identified high error rates in the small number of cases included in the reviews. This is contrary to the Department’s conclusions of minimal error rates. According to the Senators, the Department’s public description of its findings did not fully describe the experiences of servicemembers who applied for the rate caps. The Senators state in conclusion that “These problems indicate that ED has failed to effectively assess, act on, or report on potential problems with administration of the SCRA program by student loan servicers.
This is serious business. Navient’s servicing contract alone is worth more than $100 million. Yet despite long track records of problems, the Department keeps hiring the same companies to administer these lucrative contracts. And when it did engage in oversight, in this case, the Senators found serious flaws in the investigation and in the conclusions.
These disturbing findings highlight the need for a complete overhaul of the student loan servicing system. The stakes are high. Student loan servicers are the borrower’s primary point of contact. If the servicer is competent and efficient, many financially distressed borrowers will be able to avoid default. The main problem with the current system is that student loan borrowers do not receive consistent quality service. Combined with lax oversight and no clear way for borrowers to enforce their rights, too many borrowers never obtain options that could relieve their debt burdens and help them make fresh starts in life.
For too long, the Department has used an opaque contract system, repeatedly hiring the same old players to administer servicing contracts with little or no accountability. It is time to send these contracts out for open bid and open up the process to the light of day. In the meantime, the Department must engage in rigorous oversight of the existing servicers and make sure that borrowers can access rights they are entitled to. When they do investigate their contractors, the governmentmust do so honestly and accurately and let the public know what is really going on.
The Senators provided a huge public service in looking behind the numbers. Having an empiricist like Senator Warren in Congress, according to a post by Professor Katie Porter, means that “…you can expect someone reading your report, not accepting the conclusions….Our servicemembers deserve a hard look at whether their legal rights are being protected, while they are protecting our rights.”
We look forward to hearing more from the Department about the flaws uncovered in the Senators’ report and about future actions to hold servicers accountable.