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

asheffey@businessinsider.com (Ayelet Sheffey) 

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The Student Borrower Protection Center said student-loan company Maximus has a history of abuse.
Low-income borrowers allege Maximus engaged in "unfair" debt collection practices.
A Maximus spokesperson says it is not a lender and simply does backend IT support for federal loans.

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

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, has 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.

Specifically, the report highlighted litigation filed by low-income borrowers that alleged Maximus engaged in "unfair" debt collection 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, 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 is inaccurate and mischaracterizes the work Maximus does for Federal Student Aid, adding that the company's contract with the government is to simply service loans and follow the direction of the Education Department on handling loan defaults.

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

A 'newly minted student loan giant'

Last year, student-loan company Navient announced it would be shutting down its federal services, and the Education Department later announced that Aidvantage would be taking 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 be ending 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 successfully and accurately transferring millions of borrowers would be. 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 several 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. More recently, 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 Federal Student Aid head Richard Cordray, have spoken out on potential abuses of student-loan companies, and the need to hold them accountable. Cordray told The Washington Post he is reviewing the Student Borrower Protection Center's report and will 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 will be held to higher standards, and if they don't meet those standards, they will "face consequences." The CFPB has also launched a series of investigations into accusations of servicers misleading borrowers and pledged it would be increasing oversight.