Student-loan borrowers don't have 'an effective check' over the companies that manage their debt, a Democratic lawmaker says

• Rep. Katie Porter released a report on bolstering oversight over the student-loan industry.
• The report said the Education Department's responsibility to both servicers and borrowers prevents effective oversight.

A Democratic lawmaker thinks President Joe Biden's Education Department should be doing more to protect student-loan borrowers as they manage repayment.

On Thursday, Rep. Katie Porter released a report — called Checks and Balances in the Federal Student Loan System — which claims the Education Department has a "conflict of interest" in the federal student-loan system due to its responsibilities to both servicers and borrowers, preventing it from conducting proper oversight.

While Porter's report says Biden has put forth "pro-borrower" policies, like repayment plans intended to ease the burden of monthly payments, "administering student loans to maximize repayment and minimize losses will frequently be in direct tension with protecting borrowers and advising them on options to avoid default."

Since federal student-loan payments resumed after a more than three-year pause in October, borrowers have reported various issues as they navigated the complex repayment system. For example, some borrowers received inaccurate billing statements, others did not even receive their statements on time, and on top of that, limited resources at federal servicers have kept borrowers on hold for hours with customer service, sometimes to no avail.

The Education Department recently made clear it was monitoring borrowers' challenges. It even withheld October pay from one servicer, MOHELA, over failure to send on-time statements to 2.5 million borrowers.

However, Porter's report said that given the department's dual responsibility toward servicers and borrowers, borrowers "lack an effective check over their lender." She wants the Consumer Financial Protection Bureau to step in via her legislation, the CFPB Student Loan Integrity and Transparency Act.

The legislation would require the CFPB and the Education Department to share information regarding borrower complaints, analyze past complaint resolutions, and collaborate on future oversight.

An Education Department spokesperson told Business Insider that "we are committed to protecting borrowers from the consequences of servicing errors, and to holding our contractors accountable when they do not meet their obligations to borrowers."

"We previously released our framework for holding student loan servicers accountable and we will ensure borrowers do not pay the price of inadequate servicing," the spokesperson said. "The Department works closely with federal and state regulators to monitor servicer performance and has previously taken actions when they have not met their basic contractual obligations. We look forward to continuing to work with Congress on these important issues."

The CFPB declined to comment.

Other Democratic lawmakers have expressed concerns about how the return to repayment has progressed. Earlier this month, Sens. Elizabeth Warren, Bernie Sanders, Richard Blumenthal, and Chris Van Hollen sent a letter to the Education Department over concerns that borrowers are not adequately protected from the consequences of wage garnishment if they miss payments.

While the department's 12-month "on-ramp" period states that missed payments will not be actively reported, it cannot control how credit scoring agencies factor in those payments. Porter said she wants to ensure the unprecedented nature of the return to repayment doesn't interfere with borrowers' "best interests."

"As my report reveals, the Department of Education's conflicting priorities have led to poor customer service, inaccurate information, and harmful practices in the student loan servicing industry—threatening long-term financial harm to millions of borrowers," Porter said in a statement. "More oversight is needed to safeguard student loan borrowers and create a more just system of loan repayment."