OIG Report Highlights Issues With FSA’s Oversight of Federal Student Loan Servicers

By Megan Walter, Policy & Federal Relations Staff

The Department of Education’s (ED) Office of the Inspector General (OIG) released a report Thursday that found a host of issues regarding the Office of Federal Student Aid’s (FSA) oversight of federal student loan servicers.

OIG conducted the audit of FSA’s practices to review how FSA responds to risk, and its policies and procedures for monitoring servicer compliance with federal regulations between January 2015 through September 2017.

In its report, OIG wrote that service representatives did not sufficiently inform borrowers of all available repayment options, and that servicers did not correctly calculate income-driven payment amounts. From the timeframe in which the review was completed, OIG received 73 monthly reports on various servicers, and found that 92 percent of them had at least one instance of not providing complete repayment information. Navient, one of the current nine federal loan servicers, was found to be overwhelmingly placing borrowers into forbearance, instead of offering other solutions, which took place in roughly 9 percent of its calls in the span of one month.

Regarding income-driven payment amounts not being calculated correctly, OIG found noncompliance issues at seven of the nine servicers. Of the 41 reports on FSA reviewed between January 2015 and September 2017 that dealt with the calculation of income-driven payment amounts, 32 percent included incorrect calculations.

OIG also researched the loan servicing monitoring processes performed at FSA and found that team members responsible for monitoring calls between servicers and borrowers were not always submitting full reports of the phone calls, rendering them incomplete and unusable for analysis. This was the case for 8.2 percent of reviews during a 3-month period. In addition, FSA admitted that for a 10-month period they were also not sharing feedback from their call monitors with loan servicers because they were in the process of updating the report format.

OIG made six recommendations for FSA, including that FSA track and use all instances of noncompliance by loan servicers to identify trends of poor performance and hold servicers accountable, consistently share results of FSA-performed oversight activities with servicers, and create a monitoring system that ensures complete and accurate reporting.

NASFAA is heartened to see that FSA has already adopted, or has agreed to adopt, all the recommendations. However, it is noteworthy that issues identified in OIG’s report span two administrations and point to organizational and structural issues that must be addressed to help FSA meet its congressionally mandated objectives as a performance-based organization (PBO).

"With more than 44 million Americans in student loan repayment, the U.S. Department of Education Office of Inspector General’s findings about improper oversight of the Office of Federal Student Aid's federal student loan servicing contracts is disconcerting for borrowers and taxpayers,” NASFAA President Justin Draeger said. “Improper oversight creates an environment that normalizes subpar customer service of an already confusing and frustrating process for too many borrowers. After graduating or leaving school, the servicer becomes the main, if not only, point of contact for borrowers, and the information that is provided  to them should be correct, easily understood, and comprehensive.”

In 2017 NASFAA published a report that benchmarked FSA against other federal PBOs and outlined several recommendations to strengthen accountability and transparency within the agency. As Congress most assuredly investigates these issues further and moves forward on reauthorizing the Higher Education Act, NASFAA urges structural changes to strengthen FSA’s functions.

 

Publication Date: 2/14/2019


Angela C | 2/15/2019 8:37:32 AM

If a for-profit institution was ever found to be this far out of compliance, it would be all over national news feeds, receive minimal (if any) opportunity to correct, and probably end up closing. Loan servicing is OK being much further out of compliance and can get their contracts renewed? How does this make sense? Isn't the mission all roles in entire higher education to serve students?

Full disclosure - Opinion is my own and does not reflect my institution.

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