US Senate Committee on Health, Education, Labor, & Pensions

Harkin, Boxer, Colleagues Urge Investigation of Allegations That “Debt Relief” Firms Are Exploiting Students

Enforcement Needed to Stop Private Companies from Profiting Off Students Participating In Free Federal Repayment Programs

Thursday, July 11, 2013

WASHINGTON, D.C. – U.S. Senator Tom Harkin (D-IA), Chairman of the Senate Health, Education, Labor, and Pensions Committee, and Barbara Boxer (D-CA), today joined with 21 of their Senate colleagues to call on federal officials to investigate allegations that so-called “debt relief” companies have been using deceptive practices to profit from students seeking assistance in repaying their college loans.

The federal government provides tools to help students manage their college loans free of charge, but a new National Consumer Law Center report revealed that private companies are taking advantage of students by charging them up to $1,600 up front and $20-$50 in monthly fees to participate in these free federal repayment programs. 

“We are deeply concerned by the report’s findings, which indicate that some private companies are mischaracterizing federal student loan repayment programs as their own and charging exorbitant fees to enroll people in free government programs,” the Senators wrote in a letter to Secretary of Education Arne Duncan, Federal Trade Commission Chairwoman Edith Ramirez and Consumer Financial Protection Bureau Director Richard Cordray. 

Senators Harkin and Boxer were joined in the letter by Senators Jay Rockefeller (D-WV), Elizabeth Warren (D-MA), Kirsten Gillibrand (D-NY), Brian Schatz (D-HI), Jack Reed (D-RI), Richard Blumenthal (D-CT), Ron Wyden (D-OR), Dianne Feinstein (D-CA), Ben Cardin (D-MD), Al Franken (D-MN), Patty Murray (D-WA), Mark Warner (D-VA), Carl Levin (D-MI),  Heidi Heitkamp (D-ND), Mark Udall (D-CO), Martin Heinrich (D-NM), Debbie Stabenow (D-MI), Jeff Merkley (D-OR), Claire McCaskill (D-MO), Tom Udall (D-NM) and Barbara Mikulski (D-MD).

The report also revealed numerous potential violations of consumer protection laws and found that many for-profit companies falsely claim to be connected with the Department of Education and other government agencies.

“Existing law should be enforced and new rules should be considered where appropriate,” the senators wrote. “We owe it to student loan borrowers—and to taxpayers—to ensure that unscrupulous businesses are not taking advantage of the student debt crisis.”

Americans currently owe more than $1 trillion in student loans and the overall financial burden from student loan debt is second only to debt from mortgage borrowing.

The full text of the letter follows:

Arne Duncan, Secretary
Department of Education
400 Maryland Avenue, SW
Washington, DC 20202
 
Edith Ramirez, Chairwoman
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
 
Richard Cordray, Director
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20552
 

July 11, 2013

Dear Secretary Duncan, Chairwoman Ramirez, and Director Cordray:

We write to call your attention to the recent National Consumer Law Center (NCLC) report “Searching for Relief: Desperate Borrowers and the Growing Student Loan ‘Debt Relief’ Industry.”  We are deeply concerned by the report’s findings, which indicate that some private companies are mischaracterizing federal student loan repayment programs as their own and charging exorbitant fees to enroll people in free government programs.

As you are aware, student loan debt stands at an overwhelming $1 trillion, and is currently second only to mortgage loan debt.  The vast majority of this debt is owed to or guaranteed by the federal government.  Over the years, Congress has created borrower assistance programs, such as Income-Based Repayment, loan consolidation, and forbearance options, to help borrowers manage their debt.

The government provides these tools to student loan borrowers for free.  Yet, the NCLC report finds that a growing number of private companies are exploiting student loan borrowers to make a profit, charging up to $1,600 up front and $20-$50 in monthly fees to participate in free federal repayment programs.  This is simply unacceptable. 

In addition to charging money for free government programs, the report found that companies are falsely implying an affiliation with the Department of Education or other government agencies, failing to safeguard consumer financial information, and possibly violating the Credit Repair Organizations Act and the Telemarketing Sales Rule by requiring payment before providing any assistance.

We urge you to look closely at all of these issues.  Existing law should be enforced, and new rules should be considered where appropriate.  We owe it to student loan borrowers – and to taxpayers – to ensure that unscrupulous businesses are not taking advantage of the student debt crisis.

Federal student loan repayment should be manageable and free from misinformation. We look forward to collaborating with you to protect student loan borrowers and their families from financial exploitation and abuse.

 

###

More Press from the Chairman