OIG Report: ED's Review of Servicers' Compliance With SCRA 'Flawed'

By Brittany Hackett, Communications Staff

The Department of Education's (ED) Office of the Inspector General (OIG) on Monday issued a report outlining concerns about the findings of a 2015 review of student loan servicers' compliance with the Servicemembers Civil Relief Act (SCRA), which requires servicers to provide eligible servicemembers with an interest rate reduction on certain federal student loans.

The initial review conducted by ED's Financial Institution Oversight Service (FIOS) was released in May 2015 and examined the four Title IV Additional Servicers (TIVAS) — Navient, Great Lakes, Pennsylvania Higher Education Assistance Agency (PHEAA), and Nelnet — in relation to their compliance with the SCRA. Under the SCRA, eligible servicemembers are allowed an interest rate cap of six percent on federal student loans that meet the law's requirements.

ED's review found that the four servicers "complied in a vast majority of cases" with the SCRA and "show[ed] that in less than 1 percent of cases, borrowers were incorrectly denied the 6 percent interest rate cap required by the laws," according to a May 2015 press release from ED.

However in August 2015, Sens. Elizabeth Warren (D-MA), Patty Murray (D-WA), and Richard Blumenthal (D-CT) requested that OIG conduct an independent review of ED's report to determine the accuracy and adequacy of its findings.

In its report, OIG "identified flaws" with the sampling design used by ED "that resulted in the Department testing few borrowers eligible for the SCRA benefit, errors in the program reviews it conducted, and inconsistent and inadequate corrective actions for the errors it identified for the period reviewed," making the May 2015 press release "unsupported and inaccurate."

"Today's report is a stunning indictment of the Department of Education's oversight of student loan servicers, exposing the extraordinary lengths to which the Department will go to protect these companies when they break the law," Warren said in a statement issued Tuesday.

Among the errors identified in OIG's report were inadequate sampling designs for projecting the extent of SCRA compliance or noncompliance. In addition, OIG identified sampling errors for FIOS program reviews of the four TIVAS, including:

  • Three program reviews that did not use random samplings;
  • The inclusion of borrowers that would not benefit from the SCRA interest rate cap in one program review; and 
  • The inclusion in another program review of servicing actions that occurred outside the FIOS review period.

"As a result of these errors, we cannot render an opinion on the accuracy of the results FIOS reported," OIG stated in the report.

Regarding ED's May 2015 press release, OIG stated that it was "unsupported and inaccurate" because the sample used by FIOS was too small to be "appropriate to report an aggregate incorrect denial rate."

In response to OIG's review, ED said that not requiring further corrective actions for periods reviewed was a "management decision … due to limited servicing errors identified and that the decision was not primarily based on a statistical analysis," according to the report. ED also designed new procedures to address issues with servicemembers' SCRA benefits, which "if properly implemented," should have corrected the issue as of July 2014, OIG stated. However, Federal Student Aid (FSA) did not make an effort to require the TIVAS to "identify and correct all potential instances of incorrect denials" of the interest rate cap under SCRA, the report concluded.

In a note added to the May 2015 press release, ED stated that it "takes very seriously OIG's feedback and its responsibility to protect borrowers, especially those who serve their country in uniform."

 

Publication Date: 3/3/2016


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