Report: Education Department Mismanages Student Loans

The U.S. Department of Education has failed to properly oversee more than $1 trillion in federally held student loans annually, the inspector general’s office has found.

Lenders were overpaid and borrowers were inaccurately charged because the department’s Federal Student Aid (FSA) program failed to ensure that nine lenders followed federal regulations, the IG’s office reported. 

The IG identified 210 of 343 instances (61 percent) of “servicer noncompliance” in federal loan requirements. Noncompliance was found in forbearances, deferments, income-driven repayment, interest rates, due diligence and consumer protection between the beginning of 2015 and Sept. 30, 2017.

“In most cases, FSA only required servicers to correct the accounts of borrowers affected by the noncompliance specifically identified by FSA,” meaning FSA failed to police itself.

“As a result, FSA management did not have reasonable assurance that servicers were complying with federal loan servicing requirements when handling borrowers’ inquiries, borrowers might not have been protected from poor services, and taxpayers might not have been protected from improper payments,” the report stated.

FSA is the largest provider of student financial aid in the nation, handling more than $120 billion a year in federal grants, loans and work-study aid to more than 13 million students. It has more than 1,300 employees.

The inspector general wrote that FSA “neither agreed nor disagreed with the findings but agreed with all six recommendations” the IG said would benefit students and their families.

The IG said as of September 2017, FSA was responsible for about $1.147 trillion of federally held student loans. Of that, $950 billion (93 percent) was assigned to four servicers — Pennsylvania Higher Education Assistance Agency ($319 billion), Great Lakes ($236 billion), Navient ($215 billion) and Nelnet ($180 billion).

The remaining $76 billion (7 percent) was assigned to Educational Services of America Inc., Missouri Higher Education Loan Authority, New Hampshire Higher Education Loan Corp., Oklahoma Student Loan Authority and Utah Higher Education Assistance Authority.

The IG report noted that about $120 billion (10 percent) of the $1.147 trillion in outstanding federally held student loan debt was in default.

“Defaulted loans were assigned to private collection agencies, not to servicers,” it wrote.

Congress is considering a bill introduced by Tennessee Republican Sen. Lamar Alexander that would overhaul the student loan system. It includes garnishing borrower’s paychecks for loan repayments, a proposal that has some borrowers fuming as they face historically high costs of education in the U.S. 

The average cost of tuition and fees at a U.S. college or university is around $25,000 a year, while more exclusive schools charge up to $70,000 in annual tuition and fees.

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