Why Didn’t Dept. Of Education Find Problems With Loan Servicer Fined $100M?

Last May, investigations by the Department of Justice and the Federal Deposit Insurance Corporation into student loans servicing resulted in a $100 million fine against government-contracted servicer Navient for allegedly violating federal laws limiting the amount of interest that can be charged on servicemember student loans. Following those investigations, the Department of Education undertook a review that found its four servicers – including Navient – weren’t cheating military personnel. With such conflicting reports, members of Congress are now getting involved, calling for an investigation into the Dept. of Education’s review process.

The group of senators sent a letter [PDF] to Inspector General Kathleen Tighe today raising concerns that the Dept. of Education’s probe into its student loans servicers’ compliance with the Servicemembers Civil Relief Act (SCRA) was riddled with problems.

Senators Elizabeth Warren of Massachusetts, Patty Murray of Washington and Richard Blumenthal of Connecticut, say that their own analysis of the Department’s review “raises doubts regarding whether ED officials adequately reported the results of these review to the public.”

The Dept. of Education’s review, which was released in May, found that less than 1% of servicemember files serviced by Navient, Great Lakes, Nelnet and American Education Services contained violations of SCRA, including a provision the limits the amount of interest on military personnel student loans to no more than 6%.

Those findings were in contrast with the DOJ and FDIC investigation last year that found Navient charged higher interest rates on nearly 78,000 serviemember loans.

The Dept. of Education’s review was based on a random sampling of about 600 borrowers across all four federally contracted servicers, the Washington Post reports.

The senators contend that their own analysis of the review found the Department had only conducted detailed reviews of 14 cases where eligible borrowers requested and qualified for but were denied SCRA interest rate caps.

“The small number of cases reviewed is quite extraordinary, considering the newly released data from a recent DOJ and FDIC investigation concluding that Navient along denied appropriate SCRA relief to more than 75,000 federal and private loan borrowers,” the senators say. “In other words, the Department of Education based its conclusion on an examination of a tiny fraction of relevant cases.”

Additionally, the senators claim that the Dept. of Education’s review found at least one student loan servicer in error in almost 30% of the cases in which borrowers requested rate caps, finding that deserving borrowers were denied caps in 8% of reviewed cases.

“Given the numerous problems identified with these reviews, and the deeply flawed descriptions that ED offices used to present their findings, we request that you conduct your own independent assessment of the adequacy and accuracy of the review process,” the senators write.

A spokesperson for the Department of Education tells the Post that the Dept. shares the senators’ concerns regarding the treatment of servicemembers and that it will review the report.

Still, she says that the data used for the review had a different standard than the Justice Department’s investigation based on regulations and contractual requirements for student loan servicers.

Following the Navient settlement, the Post reports the Dept. of Education did make changes, streamlining the process for servicemembers to adjust interest rates when they were called to active duty. So far, it says more than 141,000 members of the military have benefited from the changes.

Elizabeth Warren wants the Education Dept.’s ‘flawed’ review of student loan contractors investigated [The Washington Post]