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Elizabeth Warren wants the Education Dept.’s ‘flawed’ review of student loan contractors investigated

Sen. Elizabeth Warren (D-Mass.) (Timothy D. Easley/AP)
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Sen. Elizabeth Warren (D-Mass.) and other Senate Democrats are calling for an investigation into an Education Department report that cleared agency contractors of cheating military servicemen and women on their federal student loans, accusing the department of conducting a deeply flawed review.

The request comes two months after the department announced that it had found little evidence of its student loan servicers, the middlemen who collect and apply payments to debt, unlawfully charging active-duty service members high interest rates on student loans. The findings contradicted similar Justice Department and Federal Deposit Insurance Corp. investigations that resulted in a $100 million settlement with student loan servicer Navient a year earlier.

[Sallie Mae to pay $97 million for unlawfully charging troops on student loans]

In their investigations, Justice and the FDIC found that Navient charged nearly 78,000 members of the military more than the 6 percent interest permitted by law. Yet the Education Department said less than 1 percent 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 (SCRA), a federal law that extends legal and financial protections to military personnel.

[Government claims companies are not overcharging troops on student loans]

The department looked at a random sampling of about 600 borrowers across all four servicers. An analysis of the reviews by Warren’s staff concluded that the agency only conducted detailed reviews of 55 cases where eligible borrowers asked for an interest rate cap. Even in those few cases, the department found problems 29 percent of the time, according to the analysis.

“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 ED 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 to the findings of the report to the public and the press.”

Warren, along with Sens. Patty Murray (D-Wash.) and Richard Blumenthal (D-Conn), is asking the inspector general to do an independent assessment of the “adequacy and accuracy” of the “deeply flawed” review process. An OIG spokeswoman said the office received the letter.

Education Department spokeswoman Dorie Nolt said in an e-mail, “We share the commitment of the Senators to our servicemembers, and we welcome any review of our results. … We will review this report and will continue to examine our processes to ensure that our servicemembers receive every benefit they are due.”

She said the department used a different standard than Justice that was consistent with its regulations on how to determine a servicemember’s active duty status and based on contractual requirements for student loan servicers.

In the wake of the Navient settlement, the department said it has streamlined the process for servicemembers so that their loan rates are adjusted when they are called to active duty. To date, more than 141,000 members of the military have benefited. Prior to that, men and women in uniform had to apply for the lower interest rate and provide proof of active duty status.

The Education Department has been under pressure from lawmakers and consumer advocates to drop Navient as one of the 11 companies that handles its $1.1 trillion in federal student loans. Critics railed against the department for renewing the company’s contract one month after the Justice settlement was announced.

In the complaint against Navient, federal prosecutors said company staff denied some borrowers’ benefit requests and stuck others with more than $500 in excess interest. And when soldiers fell behind on payments, Sallie Mae took legal action against them without documenting their military service, in violation of the law, according to the complaint.

Consumer groups have complained that servicers fail to make people struggling to repay their loans aware of the options available to them, leading some to fall behind or wind up in default. Critics say the department, which will pay loan servicers a total of $804 million this year, has been slow to clean up abuses in the market. The agency has renegotiated its contracts with the companies and offered bonuses to those that reduce delinquencies or defaults.

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