Student loan debt is now the second-largest debt in the United States with only mortgage debt higher. And, since 2013, most people aren’t able to discharge their student loan debts through bankruptcy.
That’s what makes a report from the Office of the Inspector General of the U.S. Department of Education, which is highly critical of how the department is handling federal student loan servicers, disturbing. A loan servicer is a company that handles the billing and other services on a federal student loan.
In an audit, the inspector general found that Federal Student Aid, an office of the department, hadn’t adequately supervised student loan servicers.
FSA’s routine reviews showed student loans weren’t being handled properly. From Jan. 1, 2015, through Sept. 30, 2017, 61 percent or 210 of 343 reports showed noncompliance.
While FSA tracked noncompliance, it didn’t identify the number of times noncompliance was remediated, even though FSA management could have used the information to identify patterns of poor performance.
“FSA management rarely used available contract accountability provisions to hold servicers accountable for instances of noncompliance,” the report said. “It also did not incorporate performance with federal requirements into its methodology for assigning loans to servicers.”
As a result, servicers didn’t have an incentive to correct continued noncompliance that could harm students, the report found. This lack of accountability could lead to servicers being paid more than they should be. The contracts with servicers allow FSA to recover amounts paid for loans not serviced properly.
FSA employees also didn’t always follow policy when evaluating the quality of the servicer’s interactions with borrowers, and FSA didn’t provide reports of failed calls to servicers during a 10-month period from June 2016 through March 2017. As a result, FSA management didn’t know when servicers were complying with requirements when handling inquiries, so borrowers may not have been protected from poor services, and taxpayers may not have been protected from improper payments.
The inspector general recommends that FSA:
- Track all noncompliance identified during oversight activities, and use the records to identify trends and recurring noncompliance for each servicer and all servicers.
- Use the accountability provisions available, such as requiring the return of funds or reducing future loan assignments, to hold servicers accountable for noncompliance.
- Share the results regularly of any FSA loan servicing oversight activities with servicers.