When the government offers federal student loans to citizens, they task companies with the job of overseeing the process. Currently, the U.S. has hired nine different companies specifically for this job. A student loan servicer has the task of ensuring that everything is being done by the book. This is to protect both the student and the government.
But a new report is revealing that all nine student loan servicer companies have failed their jobs. Not only that, but they’ve been failing for several years. The Department of Education hired an independent inspector who revealed this new data in a report. What’s worse is, these companies have regulators who neglected to hold the servicers responsible.
This report focuses on how each student loan servicer oversaw the loans under their jurisdiction. That includes giving the right advice and are in compliance with the government. As it turns out, they weren’t following the rules and no one held them accountable. This, in turn, hurt a lot of people with student loan debt.
According to the report: “In most cases … FSA did not take actions stronger than correcting the accounts of those affected (and) rarely did the FSA require the servicer to conduct a full file review,” the report said. “FSA also rarely penalizes servicers for recurring noncompliance.”
The FSA wasn’t having it. They replied:
“We fundamentally disagree with the (Inspector General’s) assertion that we do not have processes and procedures in place to ensure loan servicing vendors provide high-quality, compliant service to borrowers,” said Liz Hill, a spokeswoman for the Department of Education. “That said, we also are continuously looking for ways to improve.”
The Student Loan Servicer and their Failed Responsibility
One main reason why people get government student loans is they are safe. They’re backed and protected by the federal government. What’s frustrating is seeing that the nine companies they hired to oversee their loans are effectively screwing people. Each student loan servicer is guilty of improper handling of accounts.
This report revealed how they’ve been improperly dealing with borrowers by lying to them. We know that millions of Americans are struggling with their student loan debt. Because of that, the government has created a few programs to help get people on track. Those avenues can include repayment programs and even total loan forgiveness.
Of course, a student loan servicer doesn’t want the borrower to get any kind of break. They want the total amount due. So, how have they handled their job so far? They’ve been outright dishonest. They failed to alert borrowers to all of their options and generally guided them against their best interest.
“The report makes clear that the issues borrowers have been facing in the student loan market are far more pronounced and more significant than we even realized,” said Seth Frotman, president of the Student Borrower Protection Center. Frotman was the former student loan ombudsman who resigned last year.
Holding the Servicers Accountable
Currently, no student loan servicer is doing the right thing. They can be penalized for not following the rules, but it appears very little has been done thus far. Yet, the government has paid these servicers $1.7 billion for the sole job of properly managing these accounts.
According to the report, both students and taxpayers have been harmed by this lack of oversight. Not only are students being lied to, but tax money is being managed poorly. “FSA’s not holding servicers accountable could lead to a servicer being paid more than they should have (and) borrowers might not have been protected from poor services,” the report says.
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Navient is one of the big student loan servicer companies out there. They are currently in a major lawsuit against five states. The allegations against Navient include failing to direct borrowers into the right repayment programs. It wasn’t just Navient, though. All nine companies engaged in the same deceptive practices.
