Three Senate Democrats have alleged that the US Department of Education could have misled the public by clearing its favored student loan contractors of any wrongdoing in the manner in which the companies have treated active-duty troops. The trio has called for an investigation into the DoED’s internal audit, which turned a blind eye to findings from the Department of Justice (DOJ) and the Federal Deposit Insurance Corp (FDIC).
Shahien Nasiripour of The Huffington Post says this action will likely embarrass Education Secretary Arne Duncan, who has already been accused of befriending the Department’s loan contractors, even in the wake of growing evidence that borrowers have routinely been mistreated. The treatment had been so bad, in fact, that President Obama has told the department to improve oversight of the loan contractors, rework their contracts, and consider new rules in order to strengthen protections for borrowers.
The purpose of the audit was to dispel concerns that the loan providers might have overcharged active-duty troops who received federal student loans. It seemed apparent that Duncan and the Department of Education had overlooked the alleged misconduct which occurred under the department’s watch. But, the DoE ignored the fact that service members had been given incorrect information and that troops were illegally charged higher interest rates.
On top of that, the department decided not to listen to incriminating recordings of calls between loan contractors and troops who were trying to assert their rights.
Senators Elizabeth Warren (D-Mass.), Patty Murray (D-Wash.) and Richard Blumenthal (D-Conn.) say the review the department conducted has left them with more questions than answers. The department is in agreement with the senators.
“We share the commitment of the Senators to our servicemembers, and we welcome any review of our results,” said Dorie Nolt, an Education Department spokeswoman, in an email.
The department’s audit, Nolt advised, differed from the Justice Department’s because the Education Department had told its loan contractors at a previous time that service members had to request the interest rate benefit in writing in order to receive it. It has since done away with this requirement.
A year ago, similar Justice Department and FDIC investigations resulted in a $100 million settlement with student loan servicer Navient, writes Danielle Douglas-Gabriel of The Washington Post. It was found that Navient charged almost 80,000 members of the military over 6% interest — the legal limit. However, the Education Department said that fewer than 1% of the troops’ files from Navient, Great Lakes, Nelnet, and American Education Services, its four largest servicers, included violations of the Servicemembers Civil Relief Act (SCRA), a law that gives legal and financial protections to servicemembers.
The senators said that ED officials did not “provide appropriate context and failed to fully describe the findings of the report to the public and the press.” Nolt said the department will review the report and ensure that members of the military receive every benefit they are due.
The senators note that the Education Department based its conclusion on a study of a tiny portion of the relevant cases. Also, they claim that the DoE’s review found that at least one of its providers was in error in approximately 30% of the cases in which applicants requested rate caps. Because of that, deserving borrowers were denied caps in 8% of the cases reviewed. The senators said the review process was “deeply flawed.”
After the Navient settlement, says Ashlee Kieler of Consumerist, the Department of Education did make changes. The process for servicemembers to adjust interest rates when they were called to active duty was streamlined. The Education Department says that over 141,000 members of the armed services have benefited from the changes.