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GAO Report Addresses Borrower Difficulty with Federal Direct Loan Program
On June 15, the Government Accountability Office (GAO) released a report titled “Federal Student Loans: Education Could Improve Direct Loan Program Customer Service and Oversight.” As part of its study into the Department of Education’s (Education) oversight of the Direct Loan program, GAO reviewed, among other things, Education contracts, monitoring plans, policies, procedures, and guidance related to servicers as well as servicer websites, a sample of communications sent to the borrower, the summary results from Education's 2014 and 2015 customer satisfaction surveys of borrowers, and Education’s quarterly and annual servicer performance reports and annual servicer reviews from fiscal years 2010-2015. In addition, GAO interviewed, among others, CFPB and Education officials, servicers responsible for serving more than 95% of Direct Loan borrowers, and a sampling of 24 Direct Loan borrowers – selected at random from Education data – who were in either (i) repayment; (ii) delinquency (less than 270 days); or (iii) deferment of forbearance. The report highlights borrowers’ limited telephone access to their assigned loan servicers to manage their loans as a key area of concern, noting particular limitations for borrowers on the West Coast assigned to a servicer on the East Coast. The results of Education’s 2014 and 2015 borrower satisfaction surveys revealed similar findings. GAO attributed consumers’ lack of access to servicers to Education’s failure to implement a minimum standard for servicer call center hours: “Education’s lack of a minimum standard for servicer call center hours, and the limited hours currently provided, impede borrowers’ access to customer service that is responsive to their needs and puts them a greater risk of delinquency and default.” The report further notes that Education lacks a systematic approach for capturing borrower complaints, including those received through servicers, and that its performance metrics and compensation structure for servicers, which is based on borrowers’ loan status, “can sometimes hinder Education’s strategic goals of providing superior customer service and ensuring program integrity.”
Based on its findings, GAO recommends that Education (i) establish a minimum standard for servicer call center hours to allow for improved access to servicers; (ii) ensure its complaint tracking systems sufficiently capture comprehensive and comparable information from servicers regarding the nature and status of borrower complaints; and (iii) analyze and modify its performance metrics and compensation. Generally, Education agreed with GAO’s findings and recommendations, but suggested that its current performance metrics reflect compliance; GAO maintains that they do not.
Department of Education Proposes Rule to Protect Student Borrowers from Alleged Predatory Practices by Postsecondary Institutions
On June 16, the Department of Education’s (Education) proposed rule to amend the regulations governing the Direct Loan program was published in the Federal Register. The proposal seeks to clarify and expand upon existing regulations intended to protect student borrowers from alleged predatory practices by postsecondary institutions. Specifically, Education proposes to amend existing regulations by, among other things, (i) establishing a more accessible and consistent borrower defense standard and streamlining the borrower defense process to ensure protection from institutions’ alleged predatory actions and omissions resulting in loan discharges; (ii) requiring certain institutions provide Education-issued plain language warnings to prospective borrowers and enrolled students on its Web sites and in all promotional materials and advertisements; (iii) prohibiting the requirement to use arbitration to resolve claims brought by a borrower against the school or waivers of his/her right to initiate or participate in a class action lawsuit regarding such claims; and (iv) prohibiting the requirement for students to engage in internal institutional complaints or grievances before contacting accrediting or government agencies with authority over the school regarding such claims. Comments on the proposed rule must be received by Education on or before August 1, 2016.
California AG Harris Continues Fight Against For-Profit Schools Allegedly Defrauding Consumers
On June 2, California AG Kamala Harris sent a letter to the U.S. Department of Education requesting that it revoke the Accrediting Council for Independent Colleges and Schools’ (ACICS) status as a recognized accreditor of for-profit schools. In the letter, AG Harris cited to state and federal enforcement actions taken against Corinthian Colleges, Inc. (Corinthian) – a non-profit school accredited by ACICS – for engaging in allegedly predatory and deceptive marketing practices. According to AG Harris, “ACICS failed to uphold their commitment ‘to the importance of a quality education experience for all students’ when they continued to accredit Corinthian campuses in the face of regulatory and enforcement actions.” AG Harris joins 13 other state Attorneys General in opposition to ACICS’s application for renewal as an accreditor. In a letter submitted to the Department of Education in April of this year, those 13 other state Attorneys General discussed similar alleged failings by ACICS in their respective states.
AG Harris’s recent letter comes after a February 25, 2016 statement requesting that the Department of Education revise its proposed regulations relating to debt relief for students affected by for-profit schools’ allegedly deceitful practices, and also follows the AG’s $1.1 billion judgment against Corinthian.
CFPB Issues Consent Order against San Diego-Based Student Debt Loan Relief Company
On March 30, the CFPB filed a consent order against a San Diego-based student debt relief operation for alleged violations of the CFPA, the Telemarketing Sales Rule, and Regulation P. According to the CFPB, the company – marketing its services through outbound and inbound telemarketing and direct mail and falsely claiming to be affiliated with the Department of Education – charged consumers upfront fees up to $495 to enroll in federal student loan repayment programs, as well as a monthly maintenance fee of $39. The CFPB’s consent order requires the company to (i) cease all student debt relief operations; (ii) rescind all contracts entered into up to and including the date of the consent order and stop assessing fees pursuant such contracts; (iii) ensure that consumers enrolled in income-driven repayment or forgiveness plans with the Department of Education receive the paperwork necessary for annual recertification or renewal deadlines; and (iv) pay a civil money penalty of $50,000.
In light of the action, the CFPB reminded consumers of its December 2014 advisory notifying them to be mindful of companies “falsely claiming special expertise or a relationship with the Department of Education.”
CFPB Enters Proposed Final Judgment Against Student Debt Relief Company
On March 15, the CFPB filed a proposed Stipulated Final Judgment and Order in a California federal court against a California-based student debt relief company and its owner for alleged violations of the CFPA and the Telemarketing Sales Rule (TSR). In its December 2014 complaint, the CFPB alleged that the company violated the CFPA by (i) falsely misrepresenting itself as an affiliate of the Department of Education; (ii) charging consumers an upfront enrollment fee and a recurring monthly fee for “consultation” services; and (iii) deceiving consumers about the costs of their student loan debt relief services. The CFPB contended that the company violated the TSR by “primarily rel[ying] on a direct mailer and outbound telemarketing to attract consumers.” If approved by the court, the CFPB’s proposed consent order would require the company to (i) cease all operations within 45 days of the order’s effective date; (ii) stop enrolling consumers in its services and notify customers that it is ceasing operations; (iii) stop advertising, marketing, promoting, offering for sale, selling, or providing debt relief and student loan services; and (iv) ensure that borrowers confirm their income-driven repayment plans with the Department of Education and submit any necessary documentation for recertification or renewal. The order also imposes $8.2 million in damages, but the defendants will only be required to pay approximately $326,000 due to their inability to pay. Finally, the company will pay $1 to the CFPB’s Civil Money Penalty Fund, ensuring that consumers affected by the company’s practices are eligible for additional relief, if such relief becomes available in the future.
OIG Conducts Review of Department of Education Program for Ensuring Compliance with SCRA
On February 29, the Department of Education Office of Inspector General (OIG) published a response to a congressional request that the OIG conduct a review of student loan servicers’ compliance with the SCRA. The OIG analyzed SCRA reviews performed by the Department of Education (Department), obtained relevant documentation, and met with officials involved in planning and conducting SCRA program reviews. The OIG found that the Department’s sampling design for SCRA reviews did not accurately identify borrowers eligible for SCRA benefits. Specifically, the OIG found that the Department’s May 26, 2015 press release claiming 99% compliance with the SCRA was unreliable; of the 597 loans that the OIG reviewed, only 55 requested SCRA benefits and only 37 were eligible. The OIG also noted that the Department “did not make any effort to require the TIVAS [Title IV Approved Student Loan Servicers] to identify and correct all potential instances of incorrect denials of the SCRA interest rate cap.”
California AG Harris: Department of Education Should Revise Regulations to Protect Students Defrauded by For-Profit Colleges
Last week, California AG Kamala Harris requested that the Department of Education revise its proposed regulations regarding debt relief for students allegedly misled by “predatory” and for-profit colleges that advertise inflated job placement rates and asked that the Department “do more” to protect the students affected. Defrauded students have a right under Federal law to have loans discharged when their schools engage in misrepresentations and other unlawful conduct. According to AG Harris, the process for asserting this right is unclear. While the Department has emphasized that it intends to enforce an effective and streamlined loan discharge process to provide students’ relief, in the second of three negotiated rulemaking sessions, the Department “unveiled proposed language that contradicts the intent of previous discussions by narrowing, limiting, and delaying student relief.” In response to the Department’s proposal, Harris called on the Department to revise its regulations in a manner that ensures “fair and effective defense-to-repayment procedures.” Specifically, AG Harris commented that the procedures must (i) refer to state law for a basis to assert a defense; (ii) not include a statute of limitations for borrowers to assert a defense to repayment; (iii) provide procedures for broad and instantaneous relief to student borrowers affected by schools’ deceptive practices; and (iv) ban schools from making the discharge process burdensome and expensive.
DOJ Settles with For-Profit Education Company Over Alleged FCA Violations
On November 16, the DOJ announced a $95.5 million settlement with the country’s second-largest for-profit education company to resolve alleged federal and state violations of the False Claims Act (FCA). According to the DOJ’s complaint, the company’s admissions personnel received payment based on the number of students they enrolled, a violation of Title IV of the Higher Education Act’s (HEA) Incentive Compensation Ban (ICB) and the Regulatory Safe Harbor. The DOJ alleges that the company misrepresented its compliance with Title IV of the HEA to the Department of Education by certifying in Program Participation Agreements that it had not “paid to any persons or entities any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments, financial aid to students, or student retention.” The Department of Education calculated that, from July 1, 2003 through June 30, 2011, the company, having submitted “a variety of claims to the government for Title IV funding that it [knew] to be false based upon its non-compliance” with the ICB, received more than $11 billion in government funding. Under the terms of the settlement, the $95.5 million will be divided among the United States, the co-plaintiff states, and the whistleblowers and their counsel in the FCA cases filed separately in federal court in Pittsburgh, Pennsylvania and Nashville, Tennessee.
Department of Education Finalizes Rules Affecting Federal Student Loan Borrowers
On October 27, the Department of Education announced final regulations regarding how students access Federal student aid and implementing a Revised Pay As You Earn (REPAYE) program. The new rules addressing access to Federal student aid (i) protect students against “excessive” fees to access aid; (ii) require institutions to give greater choice and information to students about how to receive aid; and (iii) prohibit institutions from requiring students to open certain accounts for the deposit of student aid refunds, among other things. The rules also limit the amount of information institutions can share with third party institutions providing campus debit and prepaid cards to students under partnerships with schools and require schools to disclose on their websites the terms of those partnerships. The second set of rules announced on October 27 establishes an expanded Pay As You Earn program, which caps payments at 10 percent of annual income. The REPAYE plan covers five million more Direct Loan borrowers, without regard to when the borrowers first obtained their loans.
CFPB Releases Annual Report on Student Loan Complaints
On October 14, the CFPB released its annual report of the CFPB Student Loan Ombudsman, which analyzes consumer complaints submitted from October 1, 2014 through September 30, 2015 and provides an examination of issues raised in its September student loan servicing report. The CFPB is predominantly concerned about the group of borrowers facing repayment issues with older federal student loans made by banks and private lenders under the Federal Family Education Loan Program (FFELP). According to the CFPB’s report, at least 30 percent of borrowers who participated in FFELP are either behind in their loan repayments or already in default. The report includes the following additional noteworthy data: (i) more than one in five of borrowers with federal loans made by private lenders are past-due, with more than 10 percent in forbearance; and (ii) 95 percent of borrowers with federal loans made by private lenders are not enrolled in income-driven repayment plans. The content of the report emphasizes the importance of the Department of the Treasury, Department of Education, and the CFPB’s joint statement to improve student loan servicing practices, promote borrower success, and minimize defaults.