Report says companies failed to protect many student loan borrowers

NEW YORK — The nine companies and organizations tasked with servicing the accounts of the nation’s 30 million student loan borrowers repeatedly failed to do their jobs properly over a period of years and their regulator neglected to hold them responsible, a new report finds.

The report released Thursday by the Department of Education’s independent inspector general’s office shows some borrowers weren’t getting the guidance and protection they needed as they sought the best plan for paying off their student loans. The nation’s student loan debt now stands at $1.5 trillion.

The Inspector General’s report focused on the operations of Federal Student Aid, a part of the Department of Education that oversees student loans, from January 2015 to September 2017. FSA also oversees student loan servicers, making sure they are in compliance with their contracts with the federal government.

The report found, in many cases, FSA was not holding student loan servicers accountable when they failed to follow the rules. For example, the report says FSA found a problem at a student loan servicer six out of 10 times the regulator did a formal observation, with some servicers having the same issue repeatedly. Instead of ordering changes at the servicers, FSA often let the company off with a slap on the wrist.

“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.”

In its response to the inspector general, the FSA disagreed with the report’s conclusions but agreed to follow its recommendations.

“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 federal government does not manage student loans on its own. FSA outsources student loan accounts to a handful of private companies and state-run loan authorities. Navient, Great Lakes Educational Loan Services, Nelnet Servicing and the Pennsylvania Higher Education Assistance Agency are the largest.

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