NEW YORK (MainStreet) The federal government has played a role in loaning students money for college since way back. The 1958 National Defense of Education Act, for example, was passed to help the United States compete with the Soviet Union in the race to control Outer Space.
Times have changed since and gotten worse by almost every measure for people who must borrow money to attend college. The Senate Health, Education, Labor and Pension (HELP) committee met for the eighth time yesterday in the run up to reauthorizing the Higher Education Act, first passed in 1965, in an effort to take this bad song and making it better.
So Iowa Democratic Senator Tom Harkin was not happy when he found that the four major student loans servicers Sallie Mae, the Pennsylvania Higher Education Assistance Agency (PHEAA), Nelnet and Great Lakes who are seeking mega contracts from the Department of Education weren't in the room when the hearings opened.
"I am disappointed to report that all four TIVAs the largest contracted servicers of federal student loans under Title IV chose not to attend the hearing today, which directly concerns their contracts with the Department of Education," he said. "These loan servicers, like Sallie Mae, rely heavily on federal dollars for their business and yet could not prioritize this hearing on their calendars. I hope we can all agree that students and taxpayers deserve to be prioritized."
James Runcie, chief operating officer of the Federal Student Aid office, got a taste of what they could have expected veiled skepticism at best, extreme skepticism at worst when he tried to defend the decision to do another deal with the four servicers, insisting that the formula being used to gauge servicer performance was working well. He allowed, however, that things have not always been perfect.
"That's not saying that there aren't instances where we could improve our oversight or the customer service operations," he said, adding that "the performance-based contracts have been helpful in dictating behavior at the servicers."
The current loan servicer contracts are up by July 1. Federal procurement rules give ED some leeway on the new deals; ED could work off one year contracts with the servicers until July 2019. A shorter leash could illicit better behavior from the servicers.
Harkin said that he continued to hear complaints from borrowers about Sallie Mae. Runcie insisted that they've got it covered but continued to take the Senators' heat, because the lenders apparently couldn't stand to be in the kitchen.
"We strictly monitor their compliance to the contracts," Runcie insisted. "And we're very open to looking at those contracts and seeing if there's additional terms and things we should put in there."
He testified that the department's plan to extend the contracts of Sallie Mae and the other companies was based on "a number of different things," including the servicers' performance thus far.
Senator Elizabeth Warren, a Massachusetts Democratic, indicated that the servicers' performance left a lot to be desired. "I'm concerned about re-upping a multi-million dollar contract with Sallie Mae, when Sallie Mae is not following the rules," she said.
Warren cited the lender's previous settlements with the federal government and the three federal agencies investigating the company over its loan servicing practices. Included are a Department of Justice investigation and an expected enforcement action by the Federal Deposit Insurance Corporation for violations of the Service Members Civil Relief Act.
--Written by John Sandman for MainStreet