Kaine, Colleagues Urge DeVos to Hold Student Loan Companies Accountable, Increase Transparency To Ensure Companies Are Following the Law

Following DeVos’ troubling pattern of shielding student loan companies from accountability, Senators urge DeVos to increase transparency and accountability for companies receiving taxpayer-funded contracts 

Senators: “Borrowers, taxpayers, schools, and policymakers are poorly served by the lack of transparency over student loan servicing”

Washington, D.C. – Led by U.S. Senator Patty Murray (D-WA), ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee, Senator Tim Kaine joined 24 colleagues in a letter to Secretary of Education Betsy DeVos highlighting the need for the Department of Education to ensure student loan servicing companies that receive federal contracts are following the law and operating in the best interest of student loan borrowers. In the letter, the Senators cited concerns with Secretary DeVos’ past actions to shield student loan companies and debt collectors from accountability and urged her to make performance information about student loan companies public to ensure that corporations receiving taxpayer-funded contracts are following the law.

“The Department’s goal of modernizing our student loan repayment system has the potential to provide borrowers with consistent and quality help while they repay their student loans,” the Senators wrote. “To realize this vision, the U.S. Department of Education (“Department”) must ensure that student loan companies and debt collectors are using federal taxpayer dollars fairly, effectively, and legally. NextGen will only succeed if the Department begins to hold student loan companies accountable to the law, and if the Department allows state and federal regulators to do their job.”

After Secretary DeVos dialed back a series of consumer protections for student loan borrowers and ended the Department’s cooperation with the Consumer Financial Protection Bureau, DeVos claimed that states could not step in and protect borrowers from shady or deceptive practices of student loan corporations. Given persistent complaints from student loan borrowers about servicing problems and this Administration’s actions to weaken oversight of the industry that further put borrowers at risk, especially students of color, the Senators are urging Secretary DeVos to make information public so that states, federal agencies, borrowers, and the public can ensure these companies are now complying with the law.

In addition Senators Murray and Kaine, the letter was signed by Senators Baldwin (D-WI), Blumenthal (D-CT), Brown (D-OH), Cortez Masto (D-NV), Feinstein (D-CA), Gillibrand (D-NY), Hassan (D-CA), Klobuchar (D-MN), Leahy (D-VT), Merkley (D-OR), Murphy (D-CT), Reed (D-RI), Sanders (I-VT), Shaheen (D-NH), Smith (D-MN), Stabenow (D-MI), Van Hollen (D-MD), Warren (D-MA), Whitehouse (D-RI), Wyden (D-OR), Durbin (D-IL), Jones (D-AL), and Casey (D-PA).

The text of the letter is below and the PDF is HERE. 

December 6, 2018

The Honorable Betsy DeVos

Secretary of Education

U.S. Department of Education

400 Maryland Avenue, S.W.

Washington, DC 20202

Dear Secretary DeVos:

This letter is regarding Phase II of the solicitation for the Next Generation Processing and Servicing System (“NextGen”) which will determine the future of customer service provided to more than 42 million federal student loan borrowers throughout this country. The Department’s goal of modernizing our student loan repayment system has the potential to provide borrowers with consistent and quality help while they repay their student loans. To realize this vision, the U.S. Department of Education (“Department”) must ensure that student loan companies and debt collectors are using federal taxpayer dollars fairly, effectively, and legally. NextGen will only succeed if the Department begins to hold student loan companies accountable to the law, and if the Department allows state and federal regulators to do their job.

Federal contractors should place consumer protection among their highest priorities. However, recent developments have raised serious questions whether student loan servicers may be actively harming borrowers by failing to inform them of their options. More than one million student loan borrowers default on their loans each year, and often due to systematic servicing failures. This astounding level of default is unacceptable. The Department has access to an unprecedented amount of information on servicer interactions with borrowers, and this data should be used to promote better performance and high-quality customer service. The data should also be provided to independent regulators that oversee servicers’ compliance with the law. Servicers should have both a moral and regulatory obligation to operate in the best interest of borrowers.

In recent legislation funding the Department, Congress has directed the agency to evaluate NextGen contractors’ “history of compliance” with consumer protection laws, and that this system must “incentivize more support to borrowers at risk of being distressed.”[1] These requirements also clearly extend to any subcontractors, the performance of which Congress has made clear “shall be accounted for in the prime contract and in the overall performance of the prime contractor.” The Department has subsequently said that it “will comply with the FY 2018 Omnibus Spending Bill.” [2] Unfortunately, we remain strongly concerned that Congressional directives to protect student loan borrowers will be ignored given the Department’s pattern of actions to protect student loan companies from accountability.

The Department has failed to take appropriate steps to actually provide effective oversight of this industry, including through an attempt to limit states’ rights. The Department has claimed that the Higher Education Act of 1965 preempts all state oversight of federal student loan servicers and debt collectors. The Department justified this decision to obstruct independent oversight by states by heralding its own performance, specifically stating that such state oversight of student loan companies is unnecessary because the Department provides “exemplary customer service” that protects borrowers from “substandard practices.”[3] The Department’s go-it-alone track record in the intervening months offers little evidence to support this case. 

In order to allow stakeholders across the higher education system to understand and evaluate the baseline you have proposed for the future of the student loan system—and to verify that the Department will uphold rules of the road—the Department should release much more information about the current effort. This information will also provide interested parties, including NextGen vendors themselves, the opportunity to understand how and why the Department’s performance evaluations may change. Borrowers, taxpayers, schools, and policymakers are poorly served by the lack of transparency over student loan servicing.

Given our concerns with the Department’s historically poor oversight and management of student loan companies, we request the Department publicly release the following:

1. How, and to what standards, it will hold all vendors accountable for both compliance and performance, disaggregated by each component of NextGen.
2. All supporting documentation for NextGen, including the attachments identified in Section J of Phase II of the solicitation.
3. Copies of all past routine and targeted audits and reviews of servicer or vendor compliance.
4. All currently-utilized performance data used for monitoring, evaluation, or allocation
5. A list of all “applicable laws, regulations, and other legal mandates” to which it expects bidders to be in compliance with in order to win federal contracts.[4]
6. How it will process all “enforcement disclosure” requests under the Statement of Records Notice for the Direct Loan Program (Common Services for Borrowers, 18-11-16) made pursuant to the Privacy Act of 1974 and consistent with directives from Congress.[5]
7. When it will reestablish the required memorandum of understanding to share complaints with the Consumer Financial Protection Bureau (CFPB).

We ask that you provide the requested information no later than January 3, 2019. As stewards of taxpayer dollars, we owe it to all federal loan borrowers to build a servicing system that makes repaying loans easier and holds student loan companies accountable if they break state and federal law. As amended, NextGen does not meet these goals. We stand willing to work with you to improve student loan servicing, and we look forward to your response.

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