Borrowers’ wages were still withheld due to outstanding student debt months after the government ordered the student loan industry to suspend this activity during the coronavirus pandemic.
This is one of the findings of the Department of Education data released Thursday by the Student Borrower Advocacy Center. Data provided to a nonprofit advocacy group at the request of the Freedom of Information Act also indicates that borrowers are owed more than $ 37 million in wages seized between March 2020 and June 2021, which the Department commissioned student loan organizations. , refund.
The borrowers identified on the documents have commercial family federal education loans or debentures that were originally owned by a private lender and backed by the government. They were originally excluded from the era of the coronavirus, a pause in payments, interest and fees.
“What you see here is either a willingness to completely ignore the Department of Education, or you have an industry that just can’t follow the rules.”
But this March, the Biden administration said Borrowers with FFEL commercial loans who have defaulted on their debts will be paused and reimbursed for any wages arrested during the pandemic.
The data provided by the SBPC shows that despite these instructions, borrowers were subject to wages withheld and did not receive reimbursement until at least June. Failure to pay a student loan may be an indication wider financial difficultieswhich means that it is likely that many of these borrowers need funds that were allegedly seized to cover their bills.
“What you see here is either a willingness to completely ignore the Department of Education, or your industry simply cannot follow the rules,” said Seth Frothman, executive director of SBPC.
“Be that as it may, this is just another example of the student loan industry’s callous disregard for borrowers and widespread systemic problems,” he added.
Problems preventing debt collection
The documents are the latest indication of the problems the government faced in temporarily shutting down the student loan collection system. Last year, after Congress suspended the payment and collection of student loans under the CARES Act, thousands of borrowers almost six months later, their salaries were still being arrested.
The borrowers in question in the data released this week were not included in this group because they were not eligible for coronavirus-era student loan exemption at the time.
Despite the availability of federal student loans, borrowers with FFEL commercial loans are often deprived of many of the benefits of the federal student loan program, including the civil service loan forgiveness, which allows government employees who have made payments of at least 10 years to have their debt canceled.
For months borrowers and lawyers called The department will include these borrowers in the coronavirus response. The agency said last March that borrowers with FFEL commercial loans who defaulted would be eligible for a suspension of payments and fees.
WhileMinistry of Education officials explained that they had more room to take action on defaulting borrowers because once a borrower defaults on a commercial loan, the Ministry of Education makes a payment to the lender for its losses through a guarantee agency – intermediaries who provide insurance for these loans to lenders and also charge them a fee. Whereas, when a borrower with an FFEL commercial loan repays, the private lender is still the owner of the debt.
Legacy of the old system
For decades, the bulk of federal student loans were issued by a private lender, insured by a guarantee agency, and backed by the government, but in 2010 the government ended the program and began lending exclusively to borrowers directly.
However, guarantee agencies maintain their role in the student loan system, servicing and collecting some loans that are still outstanding under the legacy program. In May, the department wrote to these organizations instructing them to stop withholding the salaries of insolvent borrowers with FFEL commercial loans and refund any salaries received during the pandemic hiatus.
But data released as part of the SBPC’s Freedom of Information Act request shows that at least one guarantee agency, Ascendium, seized $ 3.9 million from borrowers’ salaries in June.
Brett Lindqvist, VP of Strategic Communications at Ascendium, wrote in an email to MarketWatch that the June 2021 financial report submitted to the Department of Education reflected $ 3.9 million in salary increases, but this figure includes funds raised by February and March 2021. Lindqvist wrote that money was initially misclassified into categories.
“When the error was discovered, the payments were correctly recoded and the dollar amounts for February and March were included in the June 2021 totals,” he wrote, adding that the Ministry of Education had been notified of the error, “and we followed the standard reporting procedures to resolve this. “
In fact, Ascendium’s total wage deduction in June was $ 10,272, Lindqvist writes. Wages were confiscated “because a small group of employers were unable to stop the process of paying compensation, despite our many instructions for them to do so,” writes Lindqvist.
He added that the money is automatically returned to borrowers, “without any action on their behalf, like all jewelry submitted by Ascendium from March 13, 2020 until the end of collection,” in accordance with the instructions of the Ministry of Education. , He wrote.
In addition to the data provided by the SBPC, information from the Consumer Financial Protection Bureau’s public complaints database. proposes that some borrowers could have been paid by guarantee agencies back in July. The support group’s FOIA results show that between March 2020 and June 2021, guarantee agencies did not return more than $ 37 million to borrowers that they had already seized.
James Bergeron, president of the National Council for Higher Education Resources, a trade group that represents guarantee agencies, told MarketWatch in an email that the organizations have stopped collecting payments, including pay increases, following the Department’s announcement in March this year.
“Prior to that, it was unclear whether agencies were subject to the ban on collecting federal-owned loans,” Bergeron wrote, noting that in January 2021, the Department’s Federal Student Aid Office said guarantee agencies were not required to stop. withholding of wages.
“Now all NCHER members have suspended fees and are making the necessary refunds,” he wrote.
The scope of the problem is still unclear.
While the results of the FOIA query suggest that some borrowers have been harmed, they do not provide an indication of the magnitude of the problem. For example, the data does not indicate how many borrowers had wages arrested or how much of the total payments of guarantee agencies during the COVID period was returned.
The SBPC wrote to CFPB, where Frotman was once a student loan ombudsman, to alert the agency to its findings and to try to answer some of these unresolved issues. CFPB declined to comment on MarketWatch.
SBPC also calls on the Department of Education to hold guarantee agencies accountable for their behavior. The department did not immediately respond to a request for comment on the SBPC findings.
The fact that firms involved in the student loan industry seem to ignore government regulations with little consequence (at least for now) underscores the mismatch between how the student loan system treats student loan companies and how it does. treats borrowers who are subject to a wage supplement as well as their social security benefits and tax refundwhen they don’t pay off their debts, Frotman said.
“The system just got out of control, so unmanageable and so immune to simple compliance with the law,” Frotman said. “The most vulnerable borrowers in our country are grappling with the consequences.”