MANHATTAN (CN) — Reporting systematic problems in the student loan industry, the inspector general of the Department of Education found Thursday that none of the nine entities that service borrowers’ accounts have done their jobs properly for years, with no pushback from regulators.
The damning 52-page audit concludes that a branch called the Federal Student Aid, which manages student loan servicers to which it has outsourced student accounts, consistently failed to discipline noncompliant companies for failures such as declining to disclose all potential repayment options to borrowers and miscalculating payments within debtors’ income-driven repayment plans.
“By not holding servicers accountable, FSA could give its servicers the impression that it is not concerned with servicer noncompliance with Federal loan servicing requirements, including protecting borrowers’ rights,” the report states.
The inspector general studied the FSA’s behavior from January 2015 to September 2017 and found that all nine companies monitored by FSA failed to some degree to properly advise borrowers. Additionally, although FSA did track servicers’ instances of noncompliance, the report states that it failed to review these failures in order to identify trends and patterns.
FSA’s inconsistent oversight also enabled loan servicers to keep government money that should have been given back as punishment for not complying with federal requirements. The companies are given a monthly fee, determined by the number of accounts they hold, to ensure borrowers make timely payments and have the right repayment plans.
“In the 5 years that ended September 2017, FSA had required only three servicers to return about $181,000 … for four instances of failure to service loans in compliance with federal loan servicing requirements,” the report states.
“Although FSA stated that enforcement actions since September 2017 have resulted in about $2 million in recommended recoveries, the amount represents less than 0.12 percent of $1.7 billion that FSA budgeted for its loan servicing contracts in 2018 and 2019,” the report continues.
In the report’s comments, it is noted that the FSA “strongly disagreed with the overall conclusions” of the report. The FSA also says it has already implemented or has plans to implement all of inspector general’s recommendations.