Watchdog Slams Loan Servicer Review

Inspector general says the Education Department conducted a flawed review of its loan servicers and misrepresented the findings.

March 2, 2016

The U.S. Department of Education’s review of whether its student loan servicers overcharged military personnel was flawed and officials misrepresented its findings to the public, said the agency’s independent watchdog.

The department’s inquiry concluded last year that its four main loan servicers, including Navient, mostly followed the federal law requiring them to cap the interest rates of active-duty military service members.

But on Tuesday, a report by the department’s inspector general said that the department’s methods for reaching that conclusion were flawed. The report cited inadequate samples of loans and a faulty methodology for determining whether the loan servicers complied with the law.

In some cases, the report suggests, the faulty methodology worked to the benefit of the loan servicing companies. For example, the department looked at 23 borrowers who requested the interest rate cap from Navient and concluded that 10 borrowers correctly received it. But three of those 10 borrowers did not actually receive the benefit from Navient during the time period covered by the review; they only received it afterward under new procedures developed after the department became aware of problems.

The report also says that the department misrepresented the findings of its review to the public. The department’s May 2015 news release describing the findings, the inspector general said, “is unsupported and inaccurate.”

That document claimed that the department’s review uncovered problems in “less than 1 percent of cases.” The inspector general’s report says it was inappropriate for the department to even calculate that rate based on how it performed the review, but even so, the rate is actually closer to 8 percent.

Dorie Nolt, the department’s press secretary, said that officials “take very seriously the issues raised by the inspector general about the methodology used” in the review.

“We expect to review the IG’s findings more carefully and take any appropriate steps to ensure that the department’s reviews of financial institutions meet the highest standards,” she added.

Arne Duncan, at the time the education secretary, ordered a review of the department’s four loan servicing companies in summer 2014 after the Justice Department formally accused Navient of overcharging service members. Navient paid a total of $97 million to resolve those allegations, though the company did not admit any wrongdoing in the settlement.

In addition to Navient, the department looked at its three other main servicers: Great Lakes, Nelnet and the Pennsylvania Higher Education Assistance Authority, which operates as American Education Services.

The three Senate Democrats who requested the inspector general’s review of the department’s inquiry said the report confirmed their concerns.

Senator Elizabeth Warren of Massachusetts called the report “a stunning indictment of the Department of Education's oversight of student loan servicers.” She said in a statement that it exposed “the extraordinary lengths to which the department will go to protect these companies when they break the law.”

Similarly, Senator Richard Blumenthal of Connecticut said in a statement that the report “reveals a shameful abdication of responsibility by the Department of Education.” He added, “Faced with the task of ensuring that student loan servicers had not taken advantage of the men and women who serve our country, the department conducted a sham study that raises serious questions about its oversight of this area.”

Patricia Christel, a Navient spokeswoman, said in a statement that the report “that the Department of Justice imposed a different standard for Navient than the statute and the Department of Education required of its other servicers.” 



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