Around $ 40 million was raised from the salaries of some student loan borrowers in May and June 2021, despite the Department of Education (ED) banning wage retention amid ongoing student loan suspension pandemic, according to recently released federal figures.
V datareceived as a result of a Freedom of Information request from a D.C. advocacy group, Student Borrower Advocacy Center (SBPC), showed that guarantee agencies – public or private non-profit organizations that help manage the Federal Family Education Loan Program (FFELP) – seized $ 27.2 million in May 2021 and $ 12.9 million in June 2021.
“The results of our FOIA request clearly show that despite the ED’s orders, the most vulnerable borrowers of student loans continued to have money taken out of their salaries during the ongoing pandemic,” the SBPC said in a statement. Blog post… “These results are just the latest annoying reminder that the US student debt collection machine has grown beyond anyone’s control, including the Department of Education.”
Guarantee agencies have insured FFELP loans from banks and other private lenders. When an FFELP borrower defaults on its obligations, the guarantee agency repays the loan and then collects the debt. Late March ED stopped interest and debt collection on 1.14 million outstanding FFELP loans.
In addition, the ED order was retroactive until March 13, 2020, which meant that borrowers who had salary increases, tax refunds withheld or payments made since then would be eligible for refunds.
“SBPC analysis of these documents shows that guarantee agencies did not follow ED’s clear orders to stop harassing defaulted student loan borrowers and affirmatively reimburse their salaries arrested during the pandemic,” SBPC said.
It is unclear how many borrowers were affected or how much was repaid. (One guarantee agency said MarketWatch that the wages received were returned to the borrowers.) ED did not respond to a request for comment from Yahoo Finance.
“The fact that any borrower had withholding wages during the pandemic cannot be morally justified,” said Persis Yu, director of the student loan borrower project at the National Consumer Law Center to Yahoo Finance. “This is just another reminder of how disrupted our student loan collection system is and how we continue to deny borrowers federal family education loans. These companies need to be held accountable and these borrowers need immediate help. “
A similar problem arose earlier during the pandemic: consumer advocates sued then Education Minister Betsy DeVos in May 2020 for ED’s failure to stop withholding the wages of federally supported student loan borrowers despite ED order… And although most of that money has since been returned, the Washington Post recently reported that nearly 11,000 borrowers are currently awaiting payback.
Yu argued that “we must ensure that all [FFELP] borrowers can receive the same protection as their [federally-backed] Direct Loan Partners “.
FFELP is a holdover from a student loan
FFELP loans are one of the most difficult types of student loans.
Created in 1965 within the framework of the Law on Higher Education, FFELP was created to help Americans graduate. Banks and individuals managed loans that were guaranteed by the federal government. The banks would then securitize these loans as student loan asset backed securities (SLABS) for sale to other investors. Like repackaged mortgages, SLABS relied on debt repayment by borrowers.
In October 2011, following the global financial crisis, President Obama signed a decree. ending FFELP and transferring most of the student loans to the government… Borrowers with FFELP loans were encouraged to convert their commercial loans to federal loans so that the federal direct loan program replaces FFELP as sponsor.
However, millions of FFEL borrowers remained in the hands of private lenders. The SBPC estimates that six million borrowers owe more than $ 154 billion in “FFELP commercial loans.” From this pool, only FFEL borrowers who defaulted were able to benefit from the suspension of payments due to the pandemic…
SBPC data show that, due to complexity, the US government apparatus was unable to properly monitor the guarantee agencies that service the remaining FFELP loans.
“From Congress delegated exclusive powers to provide federal student loans to the Department of Education in 2010, the guarantee agencies were effectively nothing more than legacy relics of the old system, ”SBPC said, later adding,“ But it was more than half a decade ago– and these large companies still have overwhelmingly large presence in the landscape of student loans “.
Aarti is a correspondent for Yahoo Finance. She can be contacted at firstname.lastname@example.org. Follow her on Twitter @aarthiswami…