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Student Borrowers In The Dark As Education Department Limits Disclosure

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ARNE DUNCAN
U.S. Education Secretary Arne Duncan waits to be introduced prior to speaking to students at School Without Walls August 27, 2013 in Washington, D.C. | Alex Wong via Getty Images
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The Department of Education has quietly stopped disclosing its quarterly assessment of student loan companies, making it nearly impossible for the public to judge the companies' handling of taxpayer-backed debt.

The grades, which rank loan specialists' ability to provide customer service and prevent debtors from defaulting on their loans, determine how many new loans the Education Department allots to companies like Sallie Mae each year. A better overall score leads to more loans and increased government-provided revenues.

The Education Department has previously said it published the data to hold servicers accountable and spur improved customer service. But quarterly performance results have not been posted on the department's website since August, meaning reviews covering the quarters ending Sept. 30 and Dec. 31 haven't been publicly disclosed. The department says the next batch of reviews won't be posted until late April or early May, because it wants to privately assess how the loan specialists have been handling a recent influx of new borrowers.

Consumer advocates, who use the assessments to keep tabs on both loan servicers and broader industry practices, say the department's reasoning doesn't make sense. And with some borrowers now able for the first time to choose which company they want to work with as they repay their federal student loans -- a development some Education Department officials are particularly proud of -- advocates reckon the decision to withhold information could make it harder for borrowers to choose a company that meets their needs.

"The Education Department is not sufficiently open or transparent, or sufficiently focused on its primary clients: students," said Barmak Nassirian, director of federal relations and policy analysis for the American Association of State Colleges and Universities.

Some advocates also believe the lack of disclosure makes it harder to hold the companies accountable.

"If you're trying to have a competitive marketplace, and the information is all private, it gives less incentive to servicers to change their behavior," said Deanne Loonin, director of the National Consumer Law Center's Student Loan Borrower Assistance Project.

The department's decision seems to fly in the face of President Barack Obama's advice to "shop around" when picking things like colleges and health insurance plans.

Maura Dundon, senior policy counsel for the Center for Responsible Lending, said servicers' scores are "very important" to borrowers hoping to consolidate several loans who are choosing one company to handle their monthly payments. Without access to the scores, Dundon and other advocates said, consumers are in the dark.

The move comes as the Education Department and loan servicers face increasing criticism over how they collect payments on federal student loan debt, which has reached $1.1 trillion. Sallie Mae, the nation's largest student loan servicer, is under formal investigation by at least three federal agencies -- none of them the Education Department -- over its practices.

Lawmakers and borrower advocates have said the department has exhibited little oversight of the companies it pays to service student debt. Worse, they've said, the department has looked the other way when discovering evidence of misconduct.

In December, the department told Sen. Elizabeth Warren (D-Mass.) that it had declined to levy any fines on Sallie Mae despite secretly determining that the company has harmed borrowers, incorrectly billed the department and had other servicing failures over the past decade. Warren said the agency risks becoming a "lapdog," rather than a watchdog, as a result of its lackluster supervision.

Rohit Chopra, a top official at the Consumer Financial Protection Bureau, has raised the possibility that problems infecting private student loans may also be present in federal loans. Practices banned in other consumer debt industries are still used by companies that collect payments on private student loans. These companies often misallocate payments, lack clear procedures for how borrowers can fix errors, and create hurdles for borrowers who try to rework their debts.

In December, a consortium of student groups, colleges and teachers criticized the Education Department for failing to ensure that student borrowers are granted basic consumer protections. The consortium demanded that Education Secretary Arne Duncan prohibit Sallie Mae from servicing federal student loans until the company complies with government rules.

Still, the department recently told Sallie Mae it plans to renew its lucrative servicing contract, which is set to expire.

Sallie Mae already has set aside $70 million to deal with a spate of government probes. The company maintains that borrowers it works with are less likely to default on their loans compared to other loan servicers, and Jack Remondi, its chief executive, told Duncan and members of Congress last month that the Sallie Mae unit that deals with borrowers whose federal loans are in default receives three times as many thank-you notes from those borrowers as verbal complaints.

The Education Department did not publicly announce its decision to withhold performance reviews, though it regularly informs the financial aid community when it is changing its procedures. Instead, it has published bulletins reminding the public that the surveys are being conducted. CFI Group, the company in charge of the surveys used for the performance reviews, has sent its results to the Education Department, according to Rodger Park, the company's director of customer analytics.

Borrower advocates said the department's decision appears to conflict with a memorandum from Obama, published on his first day in office, that promised his administration would "disclose information rapidly in forms that the public can readily find and use."

In the last published performance review, which covered the quarter and year ending June 30 and was made public Aug. 27, Sallie Mae was the lowest-rated company among the department's main loan servicers. The CFPB highlighted the results, with Chopra noting that "Sallie Mae ranks the worst in borrower, school, and federal personnel satisfaction.”

The Education Department said in response that Sallie Mae would be granted the fewest new loans among its major servicers.

At the time, student advocates praised the CFPB for calling attention to the Education Department's figures. Rory O’Sullivan, policy director at Young Invincibles, an advocacy group representing people ages 18 to 34, said his group was "thrilled." The department's results, while public, were posted on an obscure government website meant for what the department describes as financial aid professionals.

No results have been posted since then, leading to speculation among some borrower advocates that the Education Department resented the CFPB's apparent encroachment onto its turf.

"The delay in posting these results is unrelated to any actions by the CFPB," said Chris Greene, a spokesman for the Office of Federal Student Aid, an Education Department unit. "The department has temporarily suspended the release of [servicers'] performance metrics as we assess the impact to servicer performance in light of the final transfer of loans off of ... our legacy servicing system."

The Education Department declined to renew its contract with ACS Education Services, a Xerox company, and has been moving loans to its other servicers instead.

The process began in January of last year, according to the Education Department. The final transfers were completed by Aug. 29, and the servicing center ceased its support and messaging functions on Nov. 16.

But during the first six months of last year, while the transition was already underway, the department continued to grade the servicers and make public those results.

"I don't see why this would prevent them from releasing the performance data," Loonin said of the Education Department's rationale.

Last September, Stephen Spector, then an Education Department spokesman, said that servicers' performance results were posted online as part of the department's efforts to "promote transparency and accountability in the federal student loan programs."

"These efforts help encourage competition and improve service," Spector said.

The Education Department's move has some advocates worried that it may cease making customer service scores public altogether. They point to the department's 2010 decision to yank off its website a manual for debt collectors that could have been used by borrowers to extract concessions when negotiating their troubled debt.

At the time, the department reportedly said the removal was temporary. But more than three years later, the manual still has not been returned to the website.

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