Government investigation finds troops not overcharged on student loans
Government officials say they have found little evidence of student loan servicers, the middlemen who collect and apply payments to debt, unlawfully charging active-duty servicemembers high interest rates on student loans.
The findings come a year after the Justice Department fined student loan servicer Navient Solution $60 million for charging members of the military more than the 6 percent interest permitted by the law. At the time, Education Secretary Arne Duncan said the department would comb through the records of all of its loan servicers to make sure the violations were not widespread.
On Tuesday, the department said less than 1 percent of the troops' files it reviewed from 2009 to 2014 contained violations of the Servicemembers Civil Relief Act, a federal law that extends legal and financial protections to military personnel. The department only reviewed files from the four largest servicers — Navient, Great Lakes, Nelnet and American Education Services. A review of the records from the seven remaining loan servicers is expected to be completed later this year.
"For all of the sacrifices they have made on behalf of our country, our brave servicemembers have the right to the benefits provided to them under federal law and should not be subjected to additional red tape to manage their student loans," said Education Undersecretary Ted Mitchell.
In the wake of the Navient case, the department said it has streamlined the process for servicemembers so that their loan rates are adjusted when they are called to active duty. To date, more than 141,000 members of the military have benefited. Prior to that, men and women in uniform had to apply for the lower interest rate and provide proof of active-duty status.
The Education Department outsources the management of about $818 billion in federal student loans to 11 private debt servicers, with American Education Service overseeing the largest portion of the portfolio.
Consumer groups have complained that servicers fail to make people struggling to repay their loans aware of the options available to them, leading some to fall behind or wind up in default. A series of reports have questioned whether these companies intentionally mislead borrowers to maximize their profits.
Critics say the department, which paid loan servicers a total of $804 million in 2015, has been slow to clean up abuses in the market. The agency has renegotiated its contracts with the companies and offered bonuses to those that reduce delinquencies or defaults.
The Education Department has been under pressure from lawmakers and consumer advocates to release the findings of the review, which was supposed to be completed within 120 days of the Navient complaint.
A group of Senate Democrats, including Elizabeth Warren of Massachusetts, Sherrod Brown of Ohio and Dick Durbin of Illinois, sent a letter to Duncan last week questioning the delay and why the department continues to use Navient as a contractor.
During the press conference announcing the Navient fine, Duncan said the department would consider ending the company's contract over the servicemember violations. Not only did the government extend Navient's contract, it also gave the company more accounts.
"We are deeply concerned that Navient could have cheated our military families and broken the law, and yet somehow continue to feast off our borrowers and our taxpayers," the senators wrote.