Who the hell is Maximus--the new giant student-loan servicer?

 On October 20 of last year, the Department of Education announced that Navient, a giant student-loan servicer, was turning its business over to Maximus, a government services company. 

DOE spokesperson Richard Cordray said this about the switchover:

We are confident this decision is in the best interest of the approximately 5.6 million federal student loan borrowers who will be serviced by Maximus and will provide the stability and high-quality service they deserve.

So, who the hell is Maximus? To start with, it is a publicly-traded company whose shares are worth about $77.  Bruce Caswell, Maximus's CEO, is well compensated; he made more than $6 million last year.

Maximus has 35,000 employees, including the drudges who chase down student-loan defaulters. How much do the low-end employees make? The new minimum wage for federal contractors was recently raised to $15 an hour. Last year, Maximus's hourly wage for low-end workers was around 13 bucks.

Forty-five million Americans have outstanding student loans, and Maximus will be servicing 5.6 million of them. For those lucky millions, Maximus will be collecting student-loan payments and keeping track of delinquent debtors and defaulters.  Maximus will also replace Navient as the agent that will help student-loan borrowers switch repayment plans and certify eligibility for loan-forgiveness programs.

Navient, you recall, recently settled multiple lawsuits accusing it of deceptive trade practices.  As Pennsylvania's Attorney General summarized:

Navient repeatedly and deliberately put profits ahead of its borrowers – it engaged in deceptive and abusive practices, targeted students who it knew would struggle to pay loans back, and placed an unfair burden on people trying to improve their lives through education.

Will Maximus do a better job servicing student loans than Navient? Maybe, but probably not.

However, of one thing you can be sure. Navient's stockholders will do alright. And who are those stockholders?

They include institutional investors like BlackRock and giant banks such as Wells Fargo and Bank of America. 

And--ponder this: At least 17 public-employee retirement funds own shares in Maximus, including funds for California, Louisiana, New York, Oregon, and Wisconsin.

So if you are one of those 5.6 million Americans whose student loans are being serviced by Maximus and you are being ground down by your debt, you can take comfort in the fact that a lot of massive institutions--both public and private--are doing just fine.

Note: This blog relies heavily on Dahn Shaulis's reporting for Higher Education Inquirer. 

Consumer Financial Protection Bureau Warns Student Borrowers: Paying Extra on Loans May Not Help You Pay Them Off Early

OK, let's assume for a few moments that you are a super responsible student-loan debtor who wants to pay off your college loans early and get on with your life.

And let's assume you have a few extra bucks at the end of the month and you want to make larger monthly payments on your student loans so you can reduce the principle faster and pay off your loan more quickly. That should work, right?

Maybe not. The Consumer Financial Protection Bureau issued a warning recently that some student borrowers who pay more than the minimum monthly payment on their loans may actually be extending the period of their indebtedness.  

According to the CFPB, some student borrowers have reported that their loan servicers are thwarting borrowers who try to pay off their loans early by making larger payments.. In fact, some servicers have constructed a loan collection system that penalizes people who may more than the minimum monthly payment.

How does this system work? In some cases, loan servicers have unilaterally lowered borrowers' minimum monthly payments, thereby extending these  borrowers' repayment period and the amount of interest that borrowers pay, and they have often done this without the borrowers' knowledge.

This arbitrary practice of resetting borrowers' monthly payment amounts is called "redisclosure," and the CFPB warns borrowers that they could trigger redisclosure by making extra payments to pay their loans off sooner.

As CFPB's Mike Pierce explained:

When borrowers pay more than they owe, they expect to save money on interest charges and get out of debt faster. But the practice we highlighted can hold these borrowers back, making it harder and more expensive for student loan borrowers to pay back their loans and get out of debt.

Of course the practice of impeding college borrowers from paying off their loans early is outrageous and should be illegal. But CFPB places the responsibility on the borrower to avoid being duped. Here is CFPB's advice:

1) "Double check to make sure you're still on track to meet your goals." In other words, check to see if your servicer lowered your monthly loan payment without your knowledge.

 2) "Tell your servicer what to do with your extra money." Make sure the extra money goes to             paying down your loan with the highest interest rate and that extra money goes toward paying down principle.

3) If something doesn't look right, ask for help."

Of course, this is good advice, but wouldn't it be better if the CFPB simply required student-loan servicers to do business honestly and transparently? Shouldn't borrowers be able to pay off their student loans early by making extra payments? And shouldn't servicers be prohibited from changing payment terms without the borrower's permission or knowledge?

References

Tim Grant. Financial protection bureau concerned by some student loan servicers' practices. Pittsburgh Post-Gazette, October 3, 2016. http://www.post-gazette.com/business/money/2016/10/03/Be-cautious-when-repaying-student-loans/stories/201609280032

.Seth Frotman. You have the right to pay off your student loan as fast as you can, without a penalty. Consumer Financial Protection Bureau, September 26, 2016. http://www.consumerfinance.gov/about-us/blog/you-have-right-pay-your-student-loan-fast-you-can-without-penalty/

There's No Fool Like an Old Fool: The New York Times Just Doesn't Get It When It Comes to the Student Loan Crisis

Today, the New York Times published an editorial on the Obama administration's efforts to encourage student-loan  servicers to be less rapacious.  According to the Times, the government is changing the incentive structures so that loan-collection companies have a financial incentive to help rehabilitate student loans that are delinquent instead of pushing borrowers into default.

The Times approves of reforms that will encourage students to sign up for Income-Based Repayment Plans, plans that will have borrowers paying a percentage of their income for the next 25 years. Some reform!  The Times also likes the new rule that will give more weight to customer satisfaction surveys "in determining how well servicers do their jobs."  That idea is about as radical as Aunt Sadie's Buick Regal.

The Times editorial then goes on to say that Obama's reform efforts don't go far enough. So what does the Times suggest? "More should be done to improve competition and transparency [among loan servicers]," the Times recommends.  Borrowers should be able to jump from one loan servicer to another, the Times adds, and "set significant penalties for poor practices and create a portal where borrowers can get information about their accounts and report abuses to the Education Department instead of to the abusers."

This is the kind of timid advice you would expect from a newspaper that gets a lot of its revenue from advertising luxury goods that are targeted at its fat cat readers. I'm glad the Times wasn't in charge of negotiating with Adolph Hitler during World War II. It probably would have editorialized that Hitler needed to paint the concentration-camp barracks a more soothing color.

The Times does not seem to realize that people who fall into the hands of the student-loan servicers are dealing with truly heartless entities.  Here are some examples:

•  Educational Credit Management Corporation (ECMC) opposed bankruptcy relief for a 63-year old man who had been unemployed for 12 years, whose home was going into foreclosure, and who had been living with his wife below the poverty level.  This man had accumulated student-loan debt in the neighborhood of $240,000. Murphy v. Educational Credit Management Corporation (2014). 
•  ECMC opposed bankruptcy relief for an elderly student-loan defaulter who had chronic health problems and who was living solely on Social Security checks of less than $800 a month. Roth v. Educational Credit Management Corporation (2013). 
•  ECMC opposed bankruptcy relief for another elderly woman with student-loan debt that was more than twenty years old and who had a salary of about $500 per month and a history of homelessness. Stevenson v. Educational Credit Management Corporation (2011).

How much do ECMC executives pay themselves to chase down poor and elderly student-loan debtors? A lot. Bloomberg reported in 2012 that Richard Boyle, ECMC's Chief Executive at the time, made $1.1 million  in 2010. I could not find more recent compensation information on Educational Credit Management Corporation's new CEO, a guy named Dave Hawn, but I'll bet that Hawn is making at least as much as Boyle made four years ago.

So, New York Times editorialists, take your tepid and inadequate editorial recommendations and stick them "where the sun don't shine"--which is within your timid and obsequious little hearts.

You want to clean up the student-loan collection business? Here are some suggestions:

1) First, President Obama and Secretary of Education Arne Duncan should instruct all the student-loan servicers not to oppose bankruptcy relief for any elderly student-loan debtor who is living solely on Social Security, who has suffered long-term unemployment, or who has no real prospect of every paying off student-loan debt.  And they should follow up with regulations or legislation that would make those instructions stick.

2)  The government needs to put an upper-limit on fees and accrued interest that get tacked on to student-loan defaulters' total loan obligations.  Several bankruptcy decisions have documented that debtors' original student loan balances had more than doubled by the time they filed for bankruptcy due to accrued interest, penalties and fees.

3) The Obama administration should propose amendments to the bankruptcy laws that will allow distressed student-loan debtors who took out loans in good faith to discharge their student loans in the bankruptcy process without going through expensive and traumatic adversary proceedings.

4) Obama should propose legislation to reinstate a reasonable statute of limitation on the collection of delinquent student-loan debt--say six years, which is the same time period that applies to the collection of most monetary obligations.

5) The President should demand legislation that would stop the federal government from garnishing the Social Security checks of elderly student-loan defaulters who are totally dependent on their Social Security pensions.

6) All the companies participating in the student-loan servicing industry should be required to post the compensation of all its senior executives online so that Americans can see just how much money so-called non-profit agencies are making on the suffering of student-loan debtors.

All these recommendations are reasonable and all are more humane than the puny little recommendations the Times made in its editorial page.  If the Times can't offer any suggestions more robust than it offered in its September 8th issue, then it should keep its mouth shut about the student-loan crisis and admit that all it is really concerned about when it comes to domestic economic issues is supporting Barack Obama and maintaining Democratic control of the White House.

References

A Fairer Shot for Student Debtors. New York Times, September 8, 2014, p. A16. 

John Hechinger. Taxpayers Fund $454,000 Pay for Collector Chasing Student Loans. Bloomberg.com, May 15, 2013. Accessible at: http://www.bloomberg.com/news/2012-05-15/taxpayers-fund-454-000-pay-for-collector-chasing-student-loans.html

Brown, M., Haughwout, A., Lee, D., Mabutas, M., and van der Klaauw, W. (2012). Grading student loans. New York: Federal Reserve Bank of New York. Accessible at: http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (7th Cir. 2013).

Lockhart v. United States, 546 U.S. 142, 126 S. Ct. 699 (2005).

Murphy v. Educational Credit Management Corporation, 511 B.R. 1 (D. Mass. 2014).

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).

Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011).