Education Department Doubles Number of Loans it Improperly Collected On


THE DEPARTMENT OF Education incorrectly collected student loan debt from an additional 17,000 borrowers defrauded by for-profits colleges, it admitted this week, bringing the total to upward of 29,000.

In a monthly compliance report dated Dec. 1, department officials disclosed that a glitch in the agency’s monitoring system resulted in a major undercount of the number of borrowers who were incorrectly collected on, either in the form of traditional payments or wage and tax refund garnishments.

Department officials said that a new process they adopted to verify and validate their collection efforts shows “an isolated miscommunication” between the Education Department’s Federal Student Aid office and various loan servicers, as well as “other logistical issues” that resulted in the undercount.

“The Department’s reverification and revalidation efforts recently revealed that an isolated miscommunication between [the Federal Student Aid office] and its servicers and other logistical issues caused this underestimate in the number of impacted borrowers,” the monitoring report reads. “FSA has corrected the miscommunications with the loans servicers and developed systems to ensure borrowers stay in the correct repayment status, allowing the Department to quickly take these remedial steps.”

DeVos has come under fire for refusing to discharge the student loan debt and process the claims of borrowers who qualified or applied for loan forgiveness under the previous administration’s borrower defense protection on the basis that their schools engaged in deceptive or illegal practices.

The secretary stopped processing those claims in 2017, when she paused the Obama-era borrower defense regulation to rewrite it, arguing that it was too lenient and allowed practically anyone dissatisfied with their education to apply to have their debt forgiven. Over the course of 2017, the Education Department developed a new process to adjudicate claims using earnings data pulled from the Social Security Administration.

Last year, a federal judge ruled that using the earnings data from the Social Security Administration to process borrower defense claims violated the Privacy Act, and it ordered the department to stop. The Education Department appealed the decision to the U.S. Court of Appeals for the 9th Circuit.

 

In October, a judge held DeVos in civil contempt when the Education Department disclosed during a case management conference that it had continued to collect on the debt of thousands of former Corinthian Colleges students in direct violation of the court’s previous injunction ordering it not to collect on those debts.

At the time, the department revealed it had demanded incorrect loan payment from 16,034 students. Of those, 3,289 borrowers made one or more loan payments, which they were not actually supposed to pay, and 1,808 had their wages, tax refunds or other benefits garnished.

The monthly compliance report released Dec. 1, now shows that that an additional 17,258 student borrowers were incorrectly collected upon in violation of the court order.

Among the disclosures included in the compliance report, an additional 11,500 student borrowers made one or more loan payments, which they were not actually supposed to pay, an additional 550 experienced involuntary collection in the form of the seizure of tax refunds or wage garnishment and an additional 5,000 experienced adverse credit reporting.

“Students and taxpayers should be infuriated by the Department of Education’s complete disregard for student borrowers,” Toby Merrill, director of the Project on Predatory Student Lending, said in a statement. “Sec. DeVos has already been found in contempt of court for her illegal collections on students. Now we find out the impact was far greater than previously reported, and she still hasn’t returned all the money owed to students. It is galling, it’s unlawful, and it can’t be tolerated.”

In the report, the department writes that it has been “working diligently to implement oversight and compliance tracking measures” with the goal of “refining” its estimate of the number of potential and impacted borrowers.

“As a result of those efforts,” the compliance report reads, “the Department now has an improved understanding of those figures.”

The department officials said they have corrected the repayment status of the 29,000 borrowers.

“The Department takes seriously both our responsibility to student borrowers, our customers, and our obligation to the court,” a spokeswoman for the department said. “We have acknowledged that, unfortunately, the loan servicers made mistakes in keeping impacted students in the proper forbearance status as we wait for a final decision from the courts.”

She reiterated that the department has taken action to fix any harm done to borrowers and made internal changes to help prevent against future errors.

“The internal changes include involve putting a new team in charge of overseeing borrower defense-related issues,” she said, adding that the new staff are conducting a review to ensure borrowers weren’t inadvertently missed. “That process is well underway and will be completed soon.”