The American Legion, the influential veterans organization, has criticized the U.S. Department of Education's handling of federal allegations that student loan giant Navient Corp. intentionally cheated troops on their federal student loans.
The Legion, one of the nation’s oldest and most politically powerful veterans groups, this week told the House Veterans' Affairs Committee that it was concerned the Education Department seems to be dragging out a review of whether Navient violated the Servicemembers Civil Relief Act.
Navient, formerly known as Sallie Mae, settled federal accusations in May that it had knowingly overcharged active-duty troops on their federal and private student loans over nearly a decade. The company, which neither admitted nor denied wrongdoing, agreed to pay $60 million to troops as part of its settlement with the Federal Deposit Insurance Corp. and the Department of Justice.
But the Justice Department investigation -- which followed a referral of complaints from the federal Consumer Financial Protection Bureau and an internal investigation by Navient -- apparently wasn’t enough for Education Secretary Arne Duncan, who ordered an additional probe that's now almost six months overdue.
“The Education Department seems more concerned about the interests of student loan companies than service members,” Steve Gonzalez, an assistant director in the Legion’s veterans employment and education division, told the House committee. “The department seems to be doing everything possible to undermine the Justice Department and the CFPB, and they’re doing a hell of a job.”
The Legion asked whether the Education Department had set a “bad precedent” by potentially undermining the Justice Department and “watering down” the servicemembers law by conducting an additional investigation into Navient’s compliance.
The Legion joins a growing list of organizations questioning the Education Department’s management of its nearly $1.2 trillion student loan program. The White House, Treasury Department and CFPB all have faulted the department or its loan contractors for harming borrowers or not doing enough to protect them.
Duncan announced when Navient reached its settlement with the Justice Department and FDIC that his department would conduct its own sweeping review to determine whether the company actually cheated troops on loans the Education Department paid it to administer. The review was supposed to take 120 days, department officials told Congress. But after an initial review in the fall cleared the company, the Education Department hired Ernst & Young to further probe Navient's compliance with the servicemembers law.
Now, more than 10 months after the May 13 settlement and some six months after its review was to be completed, the Education Department is in the Legion’s crosshairs.
“Where do their interests lie?” Gonzalez said of the Education Department. “The only two agencies in this situation who have the best interests of service members in mind are the Justice Department and CFPB, yet the Education Department is trying to undermine them, which makes no sense to us.”
Some $130 million in annual revenues could be at stake for Navient were the Education Department to determine the company breached its contract by overcharging active-duty troops in violation of the law. For the Education Department, there are political risks. If its investigators concur with the Justice Department, but allow Navient to keep its contract, borrower advocates and some members of Congress would likely bombard the Obama administration with criticism for caving to a politically-connected contractor. If the Education Department investigation clears Navient, it likely would fuel claims that the department is unable to properly police companies it's supposed to supervise.
The Legion has tried to get the White House, numerous congressional committees, and the Department of Defense to look into the Education Department’s relations with Navient. The Legion, Gonzalez said, also has tried to convince members of Congress to request the Government Accountability Office to probe the Education Department’s handling of Navient’s alleged lawbreaking.
Patricia Christel, a Navient spokeswoman, declined to comment. Dorie Nolt, an Education Department spokeswoman, didn’t respond to a request for comment. Dena Iverson, a Justice Department spokeswoman, declined to comment.
The Legion’s criticisms resemble those of Sen. Elizabeth Warren (D-Mass.), who in 2013 warned that the Education Department risked becoming a “lapdog” as a result of its lackluster policing of student loan companies such as Navient.
“The federal government is willing to deploy troops abroad, but it’s also allowing for troops sent in harm's way to be victims of predatory servicing by student loan companies,” Gonzalez said.
Scrutiny from one of the nation’s oldest veterans groups threatens to further embarrass an Education Department already under fire over its close relationship with Navient, one of its biggest contractors, and the department’s Navient-related actions since May.
For example, when the Justice Department announced on May 13 its settlement with the company, Duncan said “every option is on the table” in response to a question over whether his department would terminate Navient’s lucrative contract to collect monthly payments on federal student loans. The department would conduct a “thorough” review, Duncan promised.
On June 13, according to Navient, the department extended the company’s contract for an additional five years.
Since then, the department has conducted multiple investigations to determine whether the Justice Department was right when it alleged that Navient broke the law in its handling of federal student loans.
The Huffington Post reported in October that the Education Department’s first investigation, conducted by its own staff across the country, found little evidence of wrongdoing. The results were criticized by department officials in Washington because they contradicted the findings federal prosecutors, so the department hired Ernst & Young to investigate once more.
Meanwhile, the Education Department continues to funnel more accounts and taxpayer money to Navient.
In the last six months of 2014, Navient’s revenues from the Education Department for collecting borrowers’ monthly payments rose nearly 10 percent, to $68 million, compared with the first six months of that year. The number of borrowers’ accounts it serviced increased by 400,000 to 6.2 million, according to its reports filed with the Securities and Exchange Commission.
“The Education Department has a track record of not enforcing regulations or monitoring their servicers and collectors, but this is really a whole new level,” said Chris Hicks, who leads the Debt-Free Future campaign for Jobs With Justice. “Actively rewarding Navient as you pretend to slap them on the wrist with an investigation? I think Navient knows it has a friend in the Department of Education, and I know there are millions of student loan borrowers who wish they could say the same thing.”