A student-loan company that just took over 5 million borrowers' accounts has 'a growing list of scandals and abuses,' report says

College graduates
College graduates.Robyn Beck/AFP via Getty Images
  • The Student Borrower Protection Center said student-loan company Maximus had a history of abuse.

  • Low-income borrowers alleged that Maximus engaged in unfair practices.

  • A Maximus spokesperson says it isn't a lender and simply does back-end IT support for federal loans.

The largest student-loan company in the world might not be acting in borrowers' best interests, a new report said.

The Student Borrower Protection Center and the Communications Workers of America released a report on Monday that found student-loan company Maximus, which services federal loans under the name Aidvantage, had been accused of "a growing list of scandals and abuses." Maximus recently took over 5.6 million federal borrowers' accounts from Navient, which was also accused of misleading behavior. SBPC said Maximus now processed almost 13 million accounts owing $449 billion of debt.

Specifically, the report highlighted litigation filed by low-income borrowers who alleged that Maximus engaged in unfair debt practices. Some also said Maximus caused illegal garnishment of their wages when they stopped paying their bills after being defrauded by the for-profit school they attended.

"When student loan companies cut corners and skirt the law to pad their profits, the most vulnerable people with student debt are always forced to pay the price," Mike Pierce, the executive director of the Student Borrower Protection Center, said in a statement. "Our investigation offers an early warning to regulators and people with student debt: Maximus and Aidvantage are now running the same failed servicing playbook that left millions of Navient borrowers financially bruised and broken. This newly minted student loan giant must change course before it is too late."

A spokesperson for Maximus told Insider the report was inaccurate and mischaracterized the work Maximus did for Federal Student Aid. They added that the company's contract with the government was to service loans and follow the direction of the Education Department on handling loan defaults.

The spokesperson emphasized that Maximus was in charge of back-end IT support, and that questions or complaints about a borrower's account were referred to the lender — which, in this case, was the federal government. Additionally, in response to the almost 200 complaints that borrowers had filed against the company, the spokesperson said 178 of them had been successfully addressed.

A newly minted student-loan giant

Last year, the student-loan company Navient announced it would shut down its federal services, and the Education Department later announced that Aidvantage would take over Navient's accounts. While student-loan payments have been on pause for two years as part of pandemic relief, three student-loan companies announced they would end their federal services during the pause, causing 16 million borrowers to be transferred to new companies.

Those transfers had some lawmakers and advocates concerned, given the administrative burden of successfully and accurately transferring millions of borrowers. While Navient had a controversial history, with accusations of misleading borrowers, Monday's report suggested those borrowers might not be better off under Maximus.

The report also highlighted other lawsuits against Maximus. In 2019, a defrauded student accused the company of continuing debt-collection efforts despite being directed to halt those efforts while the student's loan-forgiveness application was pending, which resulted in the seizure of her tax refunds. In January, nine borrowers accused Maximus in a lawsuit of misleading them about their ability to get out of loan defaults.

Maximus said 'it is imperative' it gets the repayment transition right

In November, Massachusetts Sen. Elizabeth Warren wrote a letter to Maximus expressing concerns with how the 5.6 million borrowers it would be servicing would be treated. Following Warren's letter, the company's spokesperson told Insider: "This is a defining moment for student borrowers, and we couldn't agree more with Sen. Warren — it is imperative we get it right."

The Consumer Financial Protection Bureau, along with Richard Cordray, the head of Federal Student Aid, has spoken out on potential abuses of student-loan companies and the need to hold them accountable. Cordray told The Washington Post that he was reviewing the examples in the Student Borrower Protection Center's report and would work to address them.

"All borrowers should be able to count on timely and accurate information about their student loans," Cordray said. "That is why FSA has renewed its partnerships with federal and state regulators, cleared roadblocks to state oversight by clarifying federal preemption rules, and negotiated new accountability terms in our recent contract extensions."

Cordray said last year that student-loan servicers would be held to higher standards, and that if they didn't meet those standards, they would "face consequences." The CFPB has also launched a series of investigations into accusations of servicers misleading borrowers and pledged it would be increasing oversight.

Read the original article on Business Insider