In February 2017, the Consumer Financial Protection Bureau (CFPB) sued Navient Corporation and two of its subsidiaries for allegedly using shortcuts and deception to illegally cheat 12 million borrowers out of their rights to lower loan repayments. These practices, according to CFPB, led to an additional $4 billion in borrower costs.
Forbearance is only one option available to borrowers repaying their student loans. While other options less costly to borrowers like income-based repayment were available, Navient’s widespread use of forbearance boosted corporate profits by minimizing time spent advising distressed borrowers.
Navient’s profit-enhancing measures came at a great expense to borrowers. For example, three-years of deferment on $30,000 in student loans would cost a borrower an additional $6,742.
A few weeks later and in response to CFPB’s lawsuit, the Education’ Department’s Federal Student Aid (FSA) division audited Navient from March 20-24, 2017, and later produced a report of its findings on May 18, 2017.
But the audit remained secret until late November this year when the investigative expertise of Associated Press, aided by U.S. Senator Elizabeth Warren (MA), finally led to public disclosure of its devastating findings. Rather than incur the wrath of consumers nationwide, and/or appear to support the CFPB or any of the multiple state attorneys general who also sued Navient, the Education Department never made the critical audit public.
As journalists would say, this story has legs: A Cabinet secretary allowed a federal contractor to act as if a key public agency worked for a private company. Additionally, audit findings hidden for a year from the public today impact 44 million student loan borrowers.
The one encouraging development in this still-unfolding scenario is that a U.S. Senator is still waging an effort to protect consumers. In a November 13th letter this year from Sen. Warren to Navient’s President and CEO, the Massachusetts Senator was justifiably direct.
“This report bolsters allegations that Navient illegally cheated struggling student borrowers out of their rights to lower repayments…This finding is both tragic and infuriating, and the findings appear to validate the allegations that Navient boosted its profits by unfairly steering student borrowers into forbearance when that was often the worst financial option for them.”
My own review of the report’s hidden findings by the audit’s six-member on-site review team uncovered how Navient not only failed to advise student loan borrowers of all available options to repay their loans but believed that its servicing contract with the Department of Education did not require the firm to do so.
A section of the report entitled, ‘Servicer Response’ states in part: “We disagree with 168 of the 228 servicing opportunity determinations (call review and servicing history review)….Nor are we aware of any requirement that borrowers receive all of their repayment options – IDR, deferment and forbearance – on each and every call…If FSA chooses to require all servicers to discuss IDR to all borrowers on all calls or to require all service representatives follow a common call flow, specific requirements should be provided in an approved Change Request.”
That’s a lot of corporate nerve.
Navient is supposed to work for the Department of Education, and by extension, the American people. Further, if Secretary DeVos allows this major contractor to shape what will or will not happen on her watch, what kind of public steward of taxpayer dollars is she?
The FSA findings give even more credence to the earlier CFPB investigation undertaken before filing its Navient lawsuit. CFPB learned that many of the borrowers that incurred excessive charges included military veterans who became disabled during their service to the country. Federal law provides that military veterans whose disabilities were incurred during service to the country are entitled to loan forgiveness.
Navient also holds title to a related and dubious distinction: More consumers filed complaints about Navient than any other student loan servicer. Complainants identified dealing with the servicer or lender as the key issue, compared to nearly half at 34 percent whose problems were based on an inability to pay their loans.
“At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs,” said then-CFPB Director Richard Cordray at the time the lawsuit was filed. “Too many borrowers paid more for their loans because Navient illegally cheated them.”
“Too many Americans are struggling to make their student loan payments every month,” said Whitney Barkley-Denney, a policy counsel specializing in student lending with the Center for Responsible Lending. “While the Department of Education has created programs to help make monthly payments more affordable, those programs only work if servicers are actually helping eligible borrowers access them. Servicers aren’t merely debt collectors – they can be a borrower’s lifeline to financial stability.”
Navient still has a chance to set its record straight. Sen. Warren’s letter requests a written reply to the litany of concerns by December 4.
Stay tuned.
Charlene Crowell is the Communications Deputy Director with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.
Beginning with a controversial nomination that ended in a tie-breaking Senate confirmation vote and continuing throughout her tenure as Education Secretary, Betsy DeVos has faced unceasing criticism. While Administration officials would be inclined to give her the benefit of the doubt, many across the country would argue that she is not serving the public’s interests.
A recent interview on CBS’ 60 Minutes provided an opportunity to address the nonstop criticism before a national audience. Instead, it prompted a new wave of critiques from viewers and news outlets alike.
More important than these recent headlines, however, is the Department’s attempt to stop states from holding student loan servicers and collectors accountable. Claiming that state consumer protection laws “undermine” federal regulator requirements, a non-binding memo is yet another assault on the 44 million Americans who together struggle with a still-growing $1.5 trillion in student debt.
It was about this time last year that Secretary DeVos withdrew three memos that would have required loan servicers, in their renegotiated contracts, to provide more intensive “high touch” servicing for borrowers threatened with default. Then late in the summer of 2017, she withdrew inter-agency working agreements between the Department and the Consumer Financial Protection Bureau (CFPB) commonly known as Memorandums of Understanding (MOUs). Prior to her joining the Education Department, these same MOUs led to a series of major enforcement actions against for-profit colleges like Corinthian and ITT Tech, as well as the nation’s largest student loan servicer, Navient.
With rollbacks in oversight and enforcement, the Education Secretary must think the department is doing a great job serving student loan borrowers that states should just butt out. A new departmental memo claims as much.
In response, Massachusetts Attorney General Martha Healey, who filed a lawsuit earlier this month that alleged overcharges to students by the Pennsylvania Higher Education Assistance Agency was just as direct as she was quick to speak up.
“Secretary DeVos can write as many love letters to the loan servicing industry as she wants, I won’t be shutting down my investigations or stand by while these companies rip off students and families,” Healey said in a statement to The Intercept. “The last thing we need is to give this industry a free pass while a million students a year are defaulting on federal loans.”
Thank goodness for state AGs like Healey. Federal enforcement of consumer protection is currently at a real low.
When Mick Mulvaney was named Acting CFPB Director, a change of direction from consumer enforcement to education and information was promptly announced with a series of more changes. In Mulvaney’s view, CFPB would no longer use aggressive enforcement to hold financial service providers accountable. On his watch, consumers have basically been told not to expect much from CFPB, while businesses have been catered to and even asked to advise Mulvaney and company of what appropriate regulation looks like.
So, if the Department of Education is not going to work with CFPB to resolve complaints and CFPB is not interested in consumer enforcement, why try to tie the hands of states who only seek to protect their own residents?
Whitney Barkley-Denney, a policy counsel with the Center for Responsible Lending, addressed the impacts to consumers of color. “Due to racial disparities in income and wealth, the consumers hardest hit by these debts are consumers of color. While the federal government continues to find ways to placate these companies, states are ready and willing to serve the best interests of borrowers and taxpayers.”
The National Governors Association (NGA) agrees with Barkley-Denney.
In a related statement, the NGA said, “Last week’s declaration on student loan servicing from the U.S. Department of Education seeks to preempt bipartisan state laws, regulations and ‘borrower bills of rights’ currently in place and under consideration in more than 15 states…. States have stepped up to fill the void left, we believe, by the absence of federal protections for student loan borrowers, from potential abusive practices by companies servicing student loans.”
Randi Weingarten, President of the American Federation of Teachers was even more candid.
“With this move, she [Secretary DeVos] has castrated any state legislators and attorneys general from providing meaningful oversight of student loan services, yet she continues to fail to do so herself,” said Weingarten.
In 2017, a CFPB report showed that during the past five years, more than 50,000 student loan complaints were filed. Additionally, more than 10,000 other related debt collection complaints were filed on both private and federal student loans.
Where these complaints originate is equally eye-opening. In just one year, from 2016 to 2017, the growth in the number of student loan complaints exceeded 100 percent in 11 states: Georgia, Indiana, Louisiana, Mississippi, Montana, North Carolina, South Carolina, Pennsylvania, Texas, Washington State and West Virginia.
It’s enough to make one wonder, ‘Who is our federal government actually serving?’
From attacks on voting rights to police killings of unarmed civilians and growing inequities in earnings and wealth, the civil rights gains of the past six decades are facing threat after threat. But one front in the fight for full equality—meaningful access to higher education—is particularly urgent. With 65 percent of jobs soon requiring more than a high school diploma, the need is greater than ever, especially for African Americans and other communities of color.
More than 50 years ago, Congress passed the Higher Education Act (HEA), intending to open the doors to higher education by providing students with financial assistance and low-interest loans. Conventional wisdom has traditionally held two things: 1) Higher education is the great equalizer; 2) It is okay to take out debt for the tickets to upward mobility: a college education and a home mortgage. These life decisions—and the struggles and sacrifices that made them possible—helped to build and grow the Black middle class.
Now, aspirations for advancement are colliding with the discriminatory legacy of the financial crisis. Our country’s student loan bill has skyrocketed. Student debt is now the second-largest source of household debt after housing. Forty-four million Americans have $1.4 trillion in student loan debt. One reason: Since the 1990s, the average tuition and fees at our universities have jumped an average of 157–237 percent depending on the type of institution.
As with the Great Recession, people of color, poor people, and predatory institutions are at the center of this socioeconomic catastrophe. They must also be at the center of the solutions.
We must face up to the fact that students of color are more likely to borrow for their education and, unfortunately, to default on these loans. Even Black college graduates default on their loans at almost four times the rate of their White counterparts and are more likely to default than even White dropouts.
This increased risk of defaulting on student loans is the direct result of inequities in financial resources, as well as discrimination in hiring, salaries and, all too often, social capital. In 2013, the median White family had 13 times more wealth than the median black family and 10 times more wealth than the median Latino family. African American students tend to take out more debt than their White counterparts, and both Blacks and Latinos are more likely to default than Whites. Since Blacks with bachelor’s degrees earn only 79 percent and Latinos only 83 percent of what their White counterparts earn, African American and Hispanic students have a harder time repaying their loans.
Further contributing to the crisis, Blacks and Latinos comprise 41 percent of the students at the high-cost, low-quality, for-profit colleges. These institutions frequently fail to prepare students for high-salary jobs, instead saddling them with exorbitant debts that they can’t repay.
How then can we address these challenges? Education Secretary Betsy DeVos wants to ease regulations on the loan servicers and for-profit colleges that have gotten us into this mess. U.S. Rep. Virginia Foxx (R-N.C.) of the House Education and Workforce Committee would take this effort even further. Her proposal for reauthorizing the HEA, the “PROSPER Act,” would ensure that students will have to borrow more to get a postsecondary education with the very real likelihood that they will never pay off the debt. This would all but guarantee that predatory, for-profit programs would continue to rise exponentially right alongside our national student debt bill. Efforts to make student aid more costly for students rather than hold institutions accountable for what they do with the aid reflects either a catastrophic misunderstanding of the root causes of this issue or something more disturbing: the blatant effort to recreate the system we had before the HEA was enacted. In this system, traditional college was by and large only accessible to the wealthy, who were usually White.
Fixing our broken student debt system should not mean un-doing years of progress since the HEA or saddling marginalized groups with a lifetime of debt. Instead, we need to hold student loan servicers, debt collectors, and institutions of all kinds accountable for their practices. African Americans, Latinos and low-income students from all backgrounds need more income-based grants, loans, financial assistance, and admissions policies that tear down barriers of color, culture, and class, not support them.
Helping college graduates to repay their loans isn’t the only challenge. The challenge is enabling and empowering all our young people to make their fullest contribution to our country. This is, in the last analysis, a debt that all Americans owe to ourselves and our nation’s future.
Wade Henderson is a founding board member of the Center for Responsible Lending. You can follow Wade on Twitter @Wade4Justice.
By Charlene Crowell, (Communications Deputy Director, Center for Responsible Lending)
AMSTERDAM NEWS — Mounting student debt is a nagging problem for most families these days. As the cost of higher education rises, borrowing to cover those costs often becomes a family concern across multiple generations including the student, parents, and even grandparents or other relatives.
Today’s 21st Century jobs usually demand higher education and specialized skills to earn one’s way into the middle class. In households where educational loans are inevitable, it becomes an important family decision to determine which institutions are actually worth the debt incurred. Equally important is the institution’s likelihood of its students graduating.
Higher education institutions that do not provide its students and graduates with requisite skills and knowledge become money pits that lead to deeper debt and likely loan defaults.
New research by the Center for Responsible Lending (CRL) analyzed student debt on a state-by-state basis. An interactive map of CRL’s findings reveal on a state basis each of the 50 states’ total undergraduate population, for-profit enrollment, and the top for-profit schools by enrollment for both four-year and two-year institutions.
Entitled “The State of For-Profit Colleges,” the report concludes that investing in a for-profit education is almost always a risky proposition. Undergraduate borrowing by state showed that the percentage of students that borrow from the federal government generally ranged between 40 to 60 percent for public colleges, compared to 50 to 80 percent at for-profit institutions.
Additionally, both public and private, not-for-profit institutions, on average, lead to better results at a lower cost of debt, better earnings following graduation, and the fewest loan defaults.
“In many cases, for-profit students are nontraditional students, making sacrifices and struggling to manage family and work obligations to make better lives for their families,” noted Robin Howarth, a CRL senior researcher. “For-profit colleges target them with aggressive marketing, persuading them to invest heavily in futures that will never come to pass.”
CRL also found that women and Blacks suffer disparate impacts, particularly at for-profit institutions, where they are disproportionately enrolled in most states.
For example, enrollment at Mississippi’s for-profit colleges was 78 percent female and nearly 66 percent Black. Other states with high Black enrollment at for-profits included Georgia (57 percent), Louisiana (55 percent), Maryland (58 percent) and North Carolina (54 percent).
Focus group interviews further substantiated these figures, and recounted poignant, real life experiences.
Brianna, a 31-year-old Black female completed a Medical Assistant (MA) certificate at the now-defunct Everest University. Once she completed her MA certificate and passed the certification test, she found she could only find a job in her field of study that paid $12 per hour, much less than the $35,000-$45,000 salary that Everest told her would be her starting salary as a medical assistant.
She was also left with $21,000 in student debt. As a result, she has struggled since matriculation with low credit scores and cramped housing conditions for herself and three children. For her, public schools, according to Brianna, are “better in the long run” due to their lower cost despite having more requirements for attendance.
