The Education Department has cleared the companies that manage its student-loan payments of wrongdoing in a yearlong investigation into their treatment of military borrowers.
The inquiry, which focused on the government’s four major servicers — Navient; Great Lakes; the Pennsylvania Higher Education Assistance Agency, or Pheaa; and the National Education Loan Network, or Nelnet — found that the companies generally complied with a law that requires them to award interest-rate reductions to active-duty service members, incorrectly withholding the benefit in less than 1 percent of cases. (A separate investigation into the department’s seven nonprofit servicers and companies that service bank-based loans continues, with results due later this year.)
The department’s findings stand in stark contrast to the results of a 2014 audit by the Department of Justice, which found that one of the servicers had unfairly denied the benefit to 93 percent of applicants. The discrepancy appears to be a result of different standards applied by the agencies.
The Education Department began its investigation into student-loan servicers last May after Navient agreed to pay the Justice Department $60 million to settle claims that it had failed to provide interest-rate reductions to thousands of military borrowers. Navient, which split off from Sallie Mae last April, admitted no wrongdoing in the settlement but agreed to compensate the roughly 60,000 members of the military whom it had allegedly overcharged.
At the time, the secretary of education, Arne Duncan, told reporters that the investigation would take 120 days. Asked whether the agency might cancel Navient’s contract, Mr. Duncan said that “everything is on the table.”
Since then, the department has been under pressure from groups that advocate for borrowers, and from some members of Congress, to cancel Navient’s contract. Last week a group of Democratic senators sent a letter to the agency accusing it of lax oversight. “The other federal watchdogs have done their job,” the senators wrote, “and it is past time for you to do yours.”
Under federal law, members of the armed forces are entitled to an interest rate of no more than 6 percent while serving on active duty. But qualifying for the benefit hasn’t always been easy; until recently, the Education Department required troops to request the benefit in writing and to provide a copy of their military orders.
That changed in August, when the department told its servicers to proactively check borrowers’ eligibility against a Department of Defense database. The requirement, which the department is seeking to extend to servicers in the bank-based program, has made it easier for some service members to receive the benefit.
The Education Department’s review, which covered the five-year period from 2009 to 2014, judged the servicers by whether they had awarded reductions based on its old standard of eligibility — written request and military orders. The Justice Department expected Navient to go further, telling troops about the rate reduction when they requested other military benefits, for example.
In a statement issued on Tuesday, Jack Remondi, president of Navient, said, “The results of the review confirm our performance on behalf of service members.”
Steve L. Gonzalez, assistant director of the American Legion’s education division, said his group was “pleased to see the department’s review found the vast majority of cases to be in compliance” but was disappointed that the review had taken a year.
“It is also frustrating,” he said, “when an agency needs to be highlighted in a negative way for them to do the right thing.”
Kelly Field is a senior reporter covering federal higher-education policy. Contact her at kelly.field@chronicle.com. Or follow her on Twitter @kfieldCHE.
