Audit Report Highlights Poor Oversight Of Student Loan Servicers

The Federal Student Aid (FSA) office, a unit of the Department of Education that offers student loans, has not established policies and procedures to make sure that entities servicing loans on behalf of the government are making the changes they are supposed to make when the entities fail to comply with their contractual requirements, according to the results of an audit conducted by the Inspector General’s office of the Education Department.

The FSA also failed to hold servicers accountable for instances of non-compliance, which led to servicers possibly recovering more money than they should have. As well, FSA employees did not follow policies when evaluating servicers’ interactions with individuals for a 10-month period, which may have exposed borrowers to questionable practices and tactics.

The FSA manages a portfolio of $1.1 trillion in federal loans and grants, 95% of which are being serviced by four different entities — Pennsylvania Higher Education Assistance Agency ($319 billion), Great Lakes ($236 billion), Navient ($215 billion) and Nelnet ($180 billion).

More than 60% of the 343 monitoring reports completed by the FSA identified instances of servicer non-compliance, but in many cases, the FSA did not follow up when a servicer agreed to make changes to ensure it was following the terms of its contract.

As well, the FSA did not rely on its database to identify trends in non-compliance across all servicers, instead relying on the “memories of the employees responsible for the oversight activities to recognize recurring instances of non-compliance.”

Among the issues identified by the audit were:

  • Servicers not sufficiently informing borrowers about their repayment options
  • Income-driven payment amounts not being correctly calculated

The audit made six recommendations and while the FSA neither agreed nor disagreed with the findings of the report, did agree to implement all six recommendations.

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