A prominent group of colleges, students, and teachers allege that the U.S. Department of Education fails to provide the basic consumer protections to students borrowers. The education group said the Department fails to enforce the law that is designed to offer consumer protections to millions of Americans who take out loans.
In a letter to U.S. Secretary of Education Arne Duncan on December 20th, the group, led by the workers rights organization Jobs With Justice, accused the Education Department of effectively allowing loan providers to violate the rights of student borrowers, writes Shahien Nasiripour of The Huffington Post.
"For many borrowers, economic hardship is just one of the hurdles standing in the way of paying back their federal student loans," the group of students, educators and colleges said. "Borrowers also have to contend with inept, subpar and potentially illegal conduct on behalf of the loan servicing and debt collection contractors that are selected and supervised by the department."
Every year, the Education Department pays private-sector companies hundreds of millions of dollars to collect payments on student loans and work with borrowers when they fall behind on their debts. However, the Department is making "little-to-no effort" to resolve longstanding complaints by borrowers and consumer advocates and hold companies accountable when they mistreat borrowers and violate their federal contracts, according to the group.
The letter, signed by the American Association of State Colleges and Universities, the American Federation of Teachers, the National Education Association, and the United States Student Association, among others, states that the federal department's detrimental and misleading practices are harmful to borrowers and the department's continued inaction will result in damaging its credibility in overseeing these contracts.
"It is simply unacceptable that the Department of Education continues to allow loan servicers to routinely break the rules of these servicing and debt collection contracts and go completely unpunished by your office," according to the letter.
The education group urged Duncan to prohibit Sallie Mae, the nation's largest handler of student debt, from servicing federal student loans until the company complies with government rules. Additionally, the group recommended the Education Department immediately launch an investigation of Sallie Mae's servicing and debt collection practices, and the results of that probe should be published.
In 2012, Sallie Mae generated $84 million in revenue from its Education Department contracts, according to securities filings. Under its Education Department contract as of September 30th, the company was servicing 5.7 million federal loans, a 39% increase from the previous year.
The criticisms levied against the Education Department by the group represent an escalation of an ongoing campaign by consumer advocates to significantly improve the treatment of student loan borrowers and crack down on companies that have allegedly violated borrowers' basic consumer rights for years.
The group includes the country's two largest teachers' unions and a trade association acting on behalf of more than 400 state schools. The letter comes amid increasing complaints from borrowers and increasing concerns from federal regulators that poor servicing of federal student loans risks driving up defaults and sapping economic growth.
Lawmakers have already warned the Education Department to expect heightened scrutiny of its loan servicing operations. Congress is getting ready to reauthorize the nearly 50-year-old Higher Education Act, the federal law governing how tens of billions of taxpayer dollars are allocated towards higher education each year.
In addition, legislators have said they plan to make changes to how federal student loans are serviced, and to the Education Department's oversight of its corporate partners.