A critical new report from the US Secretary of State for Education inspectorates notes that the department's student loan department does not adequately control the companies it uses to manage the trillion-dollar administration Nation pays portfolio of federal loans. The report also exposes the Federal Student Aid (FSA) Department of the Department of Rarely Punishing Companies That Fail to Adhere to the Rules.
Rather than protecting the interests of borrowers, the report says that the FSA's inconsistent oversight allowed these companies, known as loan advisers, to potentially breach borrowers and pocket money that would have had to be repaid because service providers did not meet federal requirements ,
"Failure to hold service providers accountable," the report said, "might give the FSA the impression that its service providers are lacking concerns about non-compliance with federal officials' requirements, including Protecting Borrowers' Rights. "
The Department of Education's Independent Inspectorate reviewed the FSA's oversight records from January 2015 to September 2017, a period that includes both the Obama and Trump administrations. The Inspector General's findings: While the FSA documented many service officials' failures to comply with the rules, it did not investigate these isolated failures to identify broader patterns of non-compliance that could have hurt significantly more students.
The audit documents several common failures that service providers, including borrowers, have not informed about any repayment options or incorrectly calculates which borrowers are to be paid through an income-related repayment plan. According to the report, two loan companies, Navient and the Pennsylvania Higher Education Assistance Agency (PHEAA), better known as FedLoan, have repeatedly put borrowers in expensive indulgence without offering them other, cheaper options.
Representatives of Navient and PHEAA did not respond immediately to a request for comment.
In comments contained in the report, the FSA disagreed with the OIG's conclusion that it had not done enough to ensure that the service staff adhered to the rules. The FSA also argued that it has already implemented or will implement all the recommendations of the Inspector General and has improved oversight since the period covered by this report.
The Education Department must complete FSA monitoring reports that include listening to telephone conversations between students and loan representatives – to ensure that borrowers receive the best and most accurate information. For this audit the Inspector General reviewed all surveillance reports prepared by the FSA by 2015, 2016, and much of 2017, and found that 61 percent of these reports indicated clerical staff absences.
While all nine loan companies occasionally did not follow the rules, some did more often than others. According to an April 2017 telephone call screening by borrowers, service providers did not meet federal requirements on average 4 percent of calls. However, the PHEAA did not provide adequate or accurate information on 10.6 percent of calls with borrowers. A review of more than 850 calls the following month revealed that PHEA representatives did not follow the rules in nearly nine percent of these interactions – more than five times the average failure rate of other service technicians this month.
Even when the department found evidence of a widespread misunderstanding among service providers, according to the Inspector General's report, government student loan officials are reluctant to claim reimbursement from service providers or to punish them by repealing future contracts.