We’ve gone into detail before about the profit that the Department of Education has made from student loans. We have also reported the complaints that have been levied against their primary loan servicer, Sallie Mae. On September 19th 2013 Senator Warren, after receiving complaints from her constituents and others across the U.S., sent a letter to Secretaries Duncan and Lew of the Departments of Education and Treasury. Last week (9 Dec 2013) James Runcie, COO of Federal Student Aid within the Department of Education finally responded to her inquiries about their relationship with Sallie Mae and the complaints leveled against their largest lender of Federal Student Loans. Both of these letters can be viewed at Senator Warren’s official website here and here. The Department of Treasury has not responded to her inquiries as of yet.
Senator Warren led off her inquiry by pointing out recent actions taken against Sallie Mae by the Federal Deposit Insurance Corporation which involve multiple violations of the Servicemembers Civil Relief Act and the multi-million dollar settlement the lender agreed to after complaints filed against them by the New York Attorney General’s office among others. Additionally, the Senator had two questions for the Treasury Department and six for the Department of Education. In his response, COO Runcie did not specifically address any of these actions except to say that none of them had reached the level where “penalties were considered appropriate”.
Investigations Past and Present
Senator Warren asked for details on all investigations on Sallie Mae and its affiliates over the last decade. Specifically, she wanted examples of contract violations and how many students were affected. The Department of Education had conducted 23 of them. Three Title IV program reviews that found problems in converting loans to a repayment program such as incorrect calculation of adjusted gross income for an Income Based Repayment Plan and failure to include a spouse’s income for calculating eligibility for an Income Contingent Repayment Plan.
There were twenty reviews of the Federal Family Education Loan Program. These found:
- Incorrect billing procedures
- Unpaid consolidation loan rebate fees
- General management deficiencies amongst others.
Finally, there was a Final Audit Determination letter issued from the Department of Education in response to and Inspector General Audit that found Sallie Mae has been overpaid by $22.3 Million. Mr. Runcie finished his response to this question by stating that “The Department does not have data on the number of borrowers affected by issues identified in program reviews, annual compliance audits and other program monitoring and oversight activities. In general, these issues have affected a very small percentage of individuals relative to the overall borrower population.” Considering that the Department of Education has already admitted that they have not received all of the complaints about Sallie Mae, this does not inspire confidence in either agency.
Not Even A Slap On The Wrist
In fact, Mr. Runcie admitted that no fines in any amount have been levied against Sallie Mae in the last ten years. This, despite findings by the Treasury Department’s Inspector General Office, the charges filed against Sallie Mae by the New York Attorney General and the complaints filed by Federal Deposit Insurance Corporation. Not a single dollar.
When asked by Senator Warren about whether or not the Department of Education would terminate their relationship with Sallie Mae or seek fines if violations were found under the Equal Credit Opportunity Act or the Servicemembers Civil Relief Act, Mr. Runcie merely restated the Senator’s question as a declaratory sentence and referenced the rules they are supposed to follow under Title IV.
Warren then questioned about what actions were taken by the Department of Education in response to the Treasury Inspector General’s May 2013 report that found Sallie Mae and other Private Collection Agencies (PCAs) did not report complaints from student loan borrowers to Education as required. Mr. Runcie’s response was that this was a “lack of clarity among the PCAs on the definition of what constituted a reportable complaint”. Education’s reaction was to issue a refined definition and updated procedures just a few weeks later in June. No other official action was apparently taken.
Third, the Senator pointed out that the Department of Education does have the authority to assess penalties of up to $35,000 per violation or other infraction. She then asked Secretary Duncan if he had exercised that authority and under what conditions would his department do so? Mr. Runcie replied that $747,500 in fines has been levied against 11 lenders since 2008, but Sallie Mae was not among that group. He then quoted Section 432(g) of the Higher Education Act of 1965 that gives them authority to fine lender or Guaranty Agencies. He then pointed out that this does not apply to Title IV loan servicers. Sallie Mae has been a Title IV loan servicer since 2009.
Investigations Past and Present
Next, Senator Warren asked for details on all investigations on Sallie Mae and its affiliates over the last decade. Specifically, she wanted examples of contract violations and how many students were affected. The Department of Education had conducted 23 of them. Three Title IV program reviews that found problems in converting loans to a repayment program such as incorrect calculation of adjusted gross income for an Income Based Repayment Plan and failure to include a spouse’s income for calculating eligibility for an Income Contingent Repayment Plan.
There were twenty reviews of the Federal Family Education Loan Program. These found incorrect billing procedures, unpaid consolidation loan rebate fees and general management deficiencies amongst others. Finally, there was a Final Audit Determination letter issued from the Department of Education in response to and Inspector General Audit that found Sallie Mae has been overpaid by $22.3 Million. Mr. Runcie finished his response to this question by stating that “The Department does not have data on the number of borrowers affected by issues identified in program reviews, annual compliance audits and other program monitoring and oversight activities. In general, these issues have affected a very small percentage of individuals relative to the overall borrower population.” Considering that Education has already admitted that they have not received all of the complaints about Sallie Mae, this does not inspire confidence in either agency.
Any Other Fines or Penalties?
Warren’s next request was for a breakdown of all penalties levied against Sallie Mae and its affiliates over the same 10 year period. There were none except for the overpayment mentioned earlier.
What Do They Have To Do To Get Fired?
Finally, the Senator wanted to know that since the previous violations have not been enough to justify ending its contract, what are the Department of Education’s standards that would justify contract termination. Mr. Runcie referenced Federal Acquisition Regulation 52.212-4m, specifically, “[t]he Government may terminate [a] contract, or any part hereof, for cause in the event of any default by the Contractor, or if the Contractor fails to comply with ant contract terms and conditions, or fails to provide the Government, upon request, with adequate assurances of future performance.”
This allows the contracting officer with authority over Sallie Mae to void their agreement based on their specific failure and explanations for it, the availability of other lenders to provide the same loan and collection services and just how urgent is the need for those services. Basically, Sallie Mae or another PCA can continue to foul up and still keep their contract if they can explain it away or if another agency can’t be brought in fast enough to handle loan and collection services.
It’s Not All Bad
Despite what appear to be some very poor responses, Mr. Runcie’s letter to Senator Warren does indicate that the Department of Education is taking these allegations seriously. With student loan debt at over $1 Trillion, her colleagues in the House and Senate need to join her and keep pushing for actual reform in the Federal and private student loan systems as well as working with higher education institutes to lower tuition and fees.
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ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
SoFi: Fixed rates from 3.890% APR to 8.074% APR (with AutoPay). Variable rates from 2.550% APR to 7.115% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.550% APR assumes current 1 month LIBOR rate of 2.50% plus 0.04% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.