June 27, 2019

Lawmakers Urge DOJ and FTC to Reconsider Merger of Student Loan Servicers and Its Impact on Student Borrowers

New report from Education Inspector General raises fresh concerns; A Nelnet-Great Lakes merger now allows a single company to service the loans of nearly 15 million student borrowers, 40% of federal student loans

Washington, DC - United States Senators Elizabeth Warren (D-Mass.) and Cory Booker (D-N.J.) and Representative David Cicilline (D-R.I.), Chairman of the Antitrust Subcommittee of the House Judiciary Committee, sent a letter to the head of the U.S. Department of Justice (DOJ) Antitrust Division, Makan Delrahim, and to the Chairman of the Federal Trade Commission (FTC), Joseph Simons, urging them to reconsider the merger between two of the four largest student loan servicers, Nelnet Inc. and Great Lakes Educational Loan Services Inc. (Great Lakes), which the DOJ reviewed and approved in 2018 despite concerns over potential effects the merger could have on market competition. The lawmakers' request comes after a recent report from the Education Department's Office of the Inspector General (OIG), which found that the Education Department is failing to promote competition or to incentivize high-quality service by student loan servicers even though they have the tools to do so. Given that most student borrowers cannot choose their servicers, the OIG's report offers new evidence for antitrust regulators to consider regarding the impact on student borrowers.

In October 2017, Nelnet announced a deal to acquire Great Lakes for $150 million. While conducting its antitrust review, reports indicated that the DOJ had concerns about the merger and sought additional information from Nelnet and Great Lakes. Despite these questions, the DOJ ultimately approved the merger without imposing any conditions. The deal was completed in February 2018, reducing the number of Title IV federal student loan servicers from four to three. With the deal now complete, a single company now services the loans of nearly 15 million federal student borrowers who hold approximately $400 billion in federal student loan debt - nearly 40 percent of the federal student loan portfolio.

While the Education Department purports to foster competition between student loan servicers, the OIG report revealed that the Education Department's Office of Federal Student Aid failed to use its available tools to hold loan servicers accountable or to competitively incentivize quality service for borrowers. According to the report, the Department rarely penalized servicers for recurring noncompliance and failed to incorporate servicer performance metrics into decisions related to assigning loans to servicers. 

This failure represents a severe threat to student borrowers and demonstrates the Department's systematic inability to hold student loan servicers accountable. By failing to use the tools at its disposal, the Education Department creates no incentive for good behavior or quality service on the part of student loan servicers. The severity of this inaction is compounded in such a concentrated market, as the Department has fewer options for redirecting accounts, raising concerns that these companies have become too big to hold accountable.

"Without real incentives for the Education Department's student loan servicers to help solve our student debt crisis, borrowers across the country, who have zero choice in who services their loans, will be the victims of predatory practices," wrote the lawmakers. "The new evidence of the Education Department's ongoing failure to protect students and adequately foster market competition in the current contracts reveal the need for DOJ and the Federal Trade Commission to retroactively review this merger."

Urging the FTC and DOJ to again review the merger, the lawmakers stressed the importance of the federal government to ensure servicers are working in the students' best interest, noting that the federal student loan debt is now at nearly $1.5 trillion and that millions of students across the United States struggle to keep up with their payments.

Senator Warren is a strong supporter of more competition and borrower protections in the federal student loan program. In 2017, she co-led the bipartisan Student Loan Servicer Performance Accountability Act with Senator Roy Blunt (R-Mo.), which would have prevented the Education Department from eliminating competition by transitioning all loans to just one federal loan servicer. In 2016, Senator Warren released student loan servicing reform principles, which highlighted the need for competition. Throughout her six years in the Senate, Senator Warren continues to fight to create more opportunities for young people and protect America's students from predatory for-profit colleges and greedy student loan companies, including recently announcing legislation that will cancel student loan debt for millions of Americans:

  • She prioritized student debt relief and fought to lower student loan interest rates, introducing the Bank on Students Loan Fairness Act as her first bill in Congress;
  • She conducted rigorous oversight of the for-profit college industry and helped secure three-quarters of a billion dollars in debt relief for students who were cheated by predatory for-profit colleges, including 4,500 Massachusetts students and more than 28,000 students across the country;
  • She worked to examine and address disproportionate student debt burden among borrowers of color; and
  • She successfully fought to create a $700 million student loan forgiveness fund for tens of thousands of Americans who work in public service, but may be denied the public service loan forgiveness relief they were promised.