PROVIDENCE – Federal Student Aid, a part of the U.S. Department of Education that oversees the nation’s 30 million student loans, and the nine companies and organizations tasked with servicing the loans failed to do their jobs properly over a period of years, according to a new report from the Department of Education’s Inspector General’s office.
The report concluded that FSA’s pattern of not holding student loan servicers to account may have harmed students and may have hurt taxpayers because student loan servicers were paid for services they provided poorly.
The inspector general highlighted two recurring problems: loan servicer representatives failed to inform borrowers of all their repayment options, and they miscalculated a borrower’s monthly payments under certain types of repayment plans.
“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,” Seth Frotman, president of the Student Borrower Protection Center, told the Associated Press.
The nation’s student loan debt now stands at $1.5 trillion.
According to the report, FSA had not established policies and procedures for a reasonable assurance against the risk of noncompliance by its loan servicers, resulting in regular instances of servicers not handling federally held student loans in accordance with federal requirements. From January 2015 through September 2017, 210 of 343 reports on FSA’s oversight activities – or 61 percent – disclosed instances of service noncompliance.
In the five years ended September 2017, the inspector general found FSA had required only three servicers to return about $181,000 to FSA for four instances of failing to service student loans properly.
“These reports disclosed noncompliance by all nine servicers and recurring instances of noncompliance by some servicers. These instances included noncompliance with requirements relevant to forbearances, deferments, income-driven repayment, interest rates, due diligence, and consumer protection,” the report states.
“FSA also rarely penalized servicers for recurring noncompliance,” it states. “Therefore, servicers with more frequent instances of noncompliance experienced no reduction in the amount of new loans that FSA assigned to them.”
FSA disagreed with the findings, but it agreed with all six of the report’s recommendations for improving the system.
“Although FSA stated that enforcement actions since September 2017 have resulted in about $2 million in recommended recoveries,” the report states, “the amount represents less than 0.12 percent of $1.7 billion that FSA budgeted for its loan-servicing contracts in 2018 and 2019.”
Scott Blake is a PBN staff writer. Email him at Blake@PBN.com.
