Democratic lawmakers want the Department of Education to retract findings from a review of loan servicers that its inspector general called "unsupported and inaccurate."
Senate Democrats are critical of the department’s audit of its student loan servicers, the companies that collect and apply payments to debt. The review was conducted after the Justice Department fined Navient Solutions $60 million in 2014 for unlawfully charging active-duty service members high interest rates on student loans.
The Education Department said it would comb through the records of all its servicers to make sure the violations were not widespread, and later announced there was little evidence of wrongdoing. A report released earlier this week by the inspector general challenged those findings and characterized the investigation as deeply flawed.
Navient at the time of the $60 million fine collected payments on nearly $300 billion in student loans. The company acknowledged at the time that it made "operational errors" that led to overcharges, but otherwise didn’t admit any wrongdoing as part of the settlement and disputed the Justice Department's interpretation of the military-lending law in question, stating that it's inconsistent with prior regulatory requirements for how borrowers should qualify for military-lending benefits.
On Thursday, several Senate Democrats - including Elizabeth Warren (Mass.) and Richard Durbin (Ill.) - in a letter asked Education Secretary John B. King Jr. to rescind the review of the department’s four largest servicers - Navient, Great Lakes, Nelnet and American Education Services.
The lawmakers want a full review to determine the number of service members who were unlawfully denied the right to have their student loan interest rate capped at 6% while on active duty between 2005 and 2014. They are basically asking the Education Department to redo the investigation and report back to the Senate Education and Veteran’s Affairs Committees.
The Education Department, the senators said, has yet to identify and refund all military borrowers who were overcharged between 2009 and July 2014, the original scope of the review period.
"It is unfair and unacceptable for service members whose loans were not covered by the Department of Justice settlement to be denied the same financial relief simply because of which loan servicer held their loan," the senators wrote in the letter. "The Department has the ability to correct this injustice and ensure that each service member is refunded interest rate overcharges for federal student loans incurred while they were on active duty."
When the findings were released last year, Sen. Patty Murray, D-Wash. - who is the top Democrat on the Health, Education, Labor and Pensions Committee - and others were suspicious of the near-clean bill of health given to the loan servicers. Several Senate Democrats said the findings were in direct contradiction of the justice probe that found Navient charged nearly 78,000 members of the military more than the interest permitted by law.
In a report issued this week, the inspector general said the Education Department used an inadequate sample of loans to draw conclusions about whether its servicers were breaking the law. Few of those borrowers requested the military benefit, and even fewer were eligible. The department, according to the report, also failed to remove duplicate records and exclude loans in military deferment or grace period with an interest rate of 6% or less. None of the servicers were required to review their portfolio of loans to identify and fix all cases of incorrect denials, according to the report.
After the Navient settlement, the Education Department eased the process for service members to have their loan rates adjusted when they’re called to active duty. Instead of service members having to provide proof of active-duty status, servicers can now match their loan portfolios against the Department of Defense’s database of active-duty troops to automatically grant the benefit. As a result, the number of active-duty troops receiving the interest rate cap has grown by roughly 300,000, more than 10 times higher than before. That includes retroactive credit for service dating back to 2008 when federal loans first became eligible for the benefit.