Despite Problems, Sallie Mae Keeps Ed Department’s Support

Despite determinations over the past 10 years that allege Sallie Mae, a company that offers loans to students, has harmed borrowers, incorrectly billed the department and had other servicing failures, the U.S. Department of Education has declined to levy any fines on the education finance giant. According to a recent letter, numerous problems are plaguing the company, but the Department of Education has recently considered renewing its lucrative contract.

According to Shahien Nasiripour of The Huffington Post, for the first time a letter from the Education Department to Sen. Elizabeth Warren (D-Mass.) provided a glimpse into the extent of problems plaguing the $1 trillion federal student loan portfolio as well as the apparently lackluster department response to faulty behavior by companies that interact with borrowers on its behalf and who collect payments on government-backed student debt. The findings come amidst accusations that Education Secretary Arne Duncan’s department tolerates wrongdoing by companies it pays to service federal student loans. Investigations by at least three federal agencies against Sallie Mae, the nation’s largest handler of student debt, are underway for allegedly violating borrowers’ rights.

However, the Education Department was not deterred by the pending investigation and possible enforcement from telling Sallie Mae in October that it intends to renew its contract to service federal student loans. Senator Warren was informed by the department that it was “not aware” of any issues or findings that would warrant any fines or termination of its existing contract with the company.

Some policymakers fears that the nation’s $1.2 trillion in unpaid student debt risks curtailing economic growth in the coming years if poor servicing of federal students loans continues.

The department’s letter “speaks for itself” as Education Department spokesman Stephen Spector put it. According to the letter, since 2009, the Education Department has found that Sallie Mae had defective practices when adjusting borrowers’ accounts, incorrectly calculated borrowers’ incomes that were in a federal program designed for low wage-earners, and erroneously tabulated household income for borrowers applying for a separate federal repayment plan meant for borrowers struggling with their monthly payments.

In the last decade, the Education Department and its inspector general have concluded that Sallie Mae incorrectly billed the department for its services, failed to report certain fees, failed to pay other parties rightful fees, filed untimely claims when borrowers defaulted on their debts, and reported incorrect repayment terms with reference to its letter to Elizabeth. In a broad way, the Education Department wrote, it has found “general management and reporting deficiencies” as well as “due diligence errors.”

Additionally, in its letter to Warren, the Education Department conceded it wasn’t aware how many borrowers were harmed by the destructive practices. Borrowers with federal student debt are routinely treated poorly, with distressed borrowers often receiving treatment that appears to violate at least the spirit of Education Department rules, according to the director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, Deanne Loonin, a borrower advocate.

“These are all serious issues that make a huge difference for borrowers,” Deanne said, after reviewing the Education Department’s description of its findings. “I’m not surprised because I’ve seen a lot of this.”

“From the borrower’s point of view, what happens is they’ll often get a denial when applying for Income-Based Repayment, but there’s no clear process to appeal or challenge,” she added. “This makes all the difference in the world for borrowers.”