Senators Call for Review of Education Department's Student Loan Report

Senate Democrats are accusing the Education Department of conducting a deeply flawed review of whether agency contractors cheated military service members on their federal student loans. They are now calling for an investigation into the department’s report.

The department announced two months ago that it doesn’t believe its student loan servicers illegally charged high interest rates on loans for active-duty service members, findings that contradicted earlier findings by the Justice Department and Federal Deposit Insurance Corp.

The Justice Department and the FDIC found that Navient charged nearly 78,000 military members more than the 6 percent interest rate permitted by law. Their investigations led to a $100 million settlement with Navient and Sallie Mae.

The Justice Department's portion of the settlement required the companies to pay $60 million in refunds and a $55,000 civil penalty. The FDIC required $30 million in refunds and $6.6 million in penalties. The two companies in early 2014 increased to $173 million the amount set aside to resolve the probes. 

But this week, the Education Department, however, said less than 1% of the troops' files from its four largest servicers — Navient, Great Lakes, Nelnet and American Education Services — contained violations of the Servicemembers Civil Relief Act, a federal law that extends legal and financial protections to military personnel.

"The Department of Education based its conclusion on an examination of a tiny fraction of the relevant cases," the senators wrote in a letter to the Education Department's Office of Inspector General. "The [Education Department] reviews identified high error rates in the small number of cases included in the reviews. The description of the findings from the ED reviews by ED officials did not provide appropriate context and failed to fully describe the findings of the report to the public and the press."

Staff members for Sen. Elizabeth Warren, D-Mass., analyzed the department’s work and concluded there were detailed reviews of 55 cases where eligible borrowers asked for an interest-rate cap. Even in those few cases, the department found problems 29% of the time, according to the analysis.The senators want the Office of the Inspector General to conduct an independent assessment of the "adequacy and accuracy" of the "deeply flawed" review process.  

Last month, the Consumer Financial Protection Bureau, said student loan servicers continue to use poor practices in handling loans for military service members. A report by the CFPB, based on more than 1,300 consumer complaints submitted to the agency, highlighted cases where servicers provided unclear or false information to service members about student loan policies.