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Education Department Lets Student Loan Contractor Off The Hook For Money Owed To Taxpayers -- Again

The Huffington Post The Huffington Post 2/11/2015 Shahien Nasiripour

The U.S. Department of Education is in no rush to collect on an unpaid debt owed by student loan contractor Navient Corp. If only distressed borrowers were so lucky.

For at least the third time this year, the department has pushed back a deadline for Navient to appeal a 2013 ruling mandating that it repay the federal government about $22 million in alleged overpayments it received in the early 2000s.

The Education Department’s inspector general recommended recouping the funds in 2009, as part of the department's crackdown on student loan companies that were improperly profiting off a program Congress had killed years earlier. However, it took department officials four years to concur.

At the start of 2015, the deadline for appeal was March 31, Navient’s securities filings show. The latest extension, granted sometime between July 1 and Sept. 30, pushed the deadline back to Nov. 12, meaning Navient can continue to delay payment.

The Education Department pays Navient, which maintains it has done nothing wrong, more than $100 million each year for collecting student loan borrowers’ monthly payments.

The department's delay in collecting the money from Navient contrasts sharply with its draconian attitude towards struggling borrowers seeking to discharge their debts in bankruptcy. Lawyers are expected to challenge borrowers’ pleas for debt forgiveness if they spend any money on “nonessential” items such as gym memberships or manicures, Deputy Assistant Secretary Lynn Mahaffie told the student loan industry in a July 7 letter.

“It’s remarkable that the Education Department is willing to fight for pocket change when it comes to student loan debtors in bankruptcy, but when it comes to its favored contractors it seems that they have no interest in recouping millions of dollars,” said Chris Hicks, who leads the Debt-Free Future campaign at the advocacy group Jobs With Justice.

The department’s leniency toward Navient comes as Education Secretary Arne Duncan battles accusations that his department is too cozy with its loan contractors. Borrower advocates, government investigators and some Democratic lawmakers, such as Sen. Elizabeth Warren of Massachusetts, have repeatedly criticized Duncan and his department for lax oversight of student loan companies, including Navient. Duncan said last month that he plans to leave office by December.

“The department is merciless in its treatment of individuals when it comes to recovering federal funds. It's sad to see that they show nothing like that same zeal when it comes to corporate waste, fraud and abuse,” said Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities.

The $22 million bill owed by Navient stems from the since-discontinued Federal Family Education Loan program, in which private lenders originated loans that ultimately were guaranteed by the federal government.

Before 1993, lenders were guaranteed a 9.5 percent return on FFEL loans that they financed using tax-exempt bonds. But in the years after Congress killed that guaranteed profit, some lenders continued to receive it by packaging new loans with older ones, a practice that came to be known as the 9.5 scandal.

The Education Department's inspector general ultimately identified hundreds of millions of dollars in dubious payments, which it recommended department officials recover.

Lenders kept most of the money as part of settlements negotiated during the George W. Bush administration. However, the Education Department under President Barack Obama has repeatedly said it wants to retrieve some of the money it believes it improperly paid to Navient, which until last year was part of Sallie Mae. According to Navient's securities filings, the two sides have been in “active discussions” for nearly a year, and the Education Department has extended the deadline to appeal its September 2013 ruling “several times.”

Maggie Thompson, manager of the Center for American Progress-affiliated Higher Ed, Not Debt campaign, said of Navient, “It's long overdue for the Department of Education to fine them and fire them.”

Patricia Christel, a Navient spokeswoman, didn’t respond to a request for comment. Marta Erceg, counsel to Kathleen Tighe, the department's inspector general, declined to comment and referred inquiries to Education Department spokeswoman Dorie Nolt. Nolt didn't respond to a request for comment.

“The department has had more than half a decade to act, and it has done nothing,” Hicks said. “It should do to Navient what it does to millions of borrowers every month: garnish its wages.”

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