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Education Department moves to refund military borrowers for overcharges

March 7, 2016 at 3:35 p.m. EST
John King, left, seen with Arne Duncan at an awards ceremony at Patterson Elementary School in Washington, D.C., announced a move on Monday to refund more military borrowers. (Evelyn Hockstein for The Washington Post)

Acting Education Secretary John B. King Jr. told members of the Senate education committee Monday that the department is taking steps to refund money to all military borrowers who were charged more than 6 percent interest on their federal student loans since 2008.

Senate Democrats press Education Department to rescind reviews of loan servicers

The move arrives days after Senate Democrats sent a letter urging King to have the department identify and refund all military borrowers who were overcharged between 2009 and July 2014. The request stems from an audit of the department’s student loan servicers, the middlemen who collect and apply payments to debt, conducted after the Justice Department fined Navient Solutions $60 million in 2014 for unlawfully charging active-duty service members high interest rates on student loans.

The agency promised to review the records of all its servicers to make sure the violations were not widespread, and it later announced there was little evidence of wrongdoing. But a report released last week by the inspector general rebutted the department’s claims and characterized the investigation as deeply flawed. In the wake of the inspector general’s report, Senate Democrats, including Elizabeth Warren (Mass.) and Patty Murray (Wash.), asked the department to rescind the review of its four largest servicers — Navient, Great Lakes, Nelnet and American Education Services — and take further steps to refund victims.

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“It is unfair and unacceptable for service members whose loans were not covered by the Department of Justice settlement to be denied the same financial relief simply because of which loan servicer held their loan,” the senators wrote in the letter. “The Department has the ability to correct this injustice and ensure that each service member is refunded interest rate overcharges for federal student loans incurred while they were on active duty.”

On Monday, King announced the move to refund more military borrowers in a written response to questions raised by senators during his recent confirmation hearing. He said the department “initiated a process to conduct a data match and automatically provide credit for any servicemember who was on active duty since federal student loans became eligible for the benefit. This would provide the benefit to any servicemember who was on active duty, going back to 2008, whether or not they had applied for the benefit.”

In the wake of the Navient case, the department simplified the process for service members to have their loan rates adjusted when they are called to active duty. Instead of service members having to provide proof of active-duty status, servicers can now match their loan portfolios against the Department of Defense’s database of active-duty troops to automatically grant the benefit. As a result, the number of active-duty troops receiving the interest rate cap has grown by roughly 300,000, more than 10 times higher than before.

Want to read more about the student loan servicing? Check out these stories:

The provision in the budget agreement that could radically change student loan servicing

The surprisingly high number of people who are behind on their student loans

How the attempt to fix student loans got bogged down by the middlemen

Sidelined by disability and saddled with student loans