Profits vs. students’ interest

As long as the National Student Loan Service Centre is in a private company’s hands, don’t hope for improved service

Jennifer Fitzpatrick didn’t think it would be a big deal to reapply for interest relief on her student loan since she had already been accepted into the financial aid program once. Little did she know how badly the National Student Loan Service Centre (NSLSC) was about to bungle her file — leading to a big black mark on her credit rating.

Fitzpatrick is only one of many borrowers negatively affected by the administrative maze that is the Canada Student Loan Program. According to the 2007 Createc + SIF survey, 60 per cent of those who have applied for a government student loan were dissatisfied, and tales of lost documentation, misplaced loans, and misinformation are unending.

When Fitzpatrick graduated as a registered massage therapist in 2001, she had $30,000 in federal student loans, $10,000 owed to the Royal Bank and the rest held by NSLSC. She opened a massage practice and struggled to build it. Self-employed, she couldn’t keep up with her student loan payments and contacted the Royal Bank to apply for interest relief. They advised her to apply through NSLSC. They said NSLSC would notify the bank if she was approved.

The first time, she was approved and everything went smoothly. But when she applied a second time to have her interest relief extended, she waited two months without an answer, all the while assuring the Royal Bank that she would bring the interest relief form in as soon as she received it.

Finally, she received a letter asking for additional information, but it had been addressed incorrectly, tying it up in the mail for months. But the letter came too late and the Royal Bank had already sent her loan to a collections agency, that charges 18 per cent interest, and reported a negative rating to the credit bureau.

She later brought her complaint to her MP and eventually received an apology from the NSLSC. Although the apology letter partially acknowledged that NSLSC was to blame for the mistake, it hinted that she was somehow at fault and did nothing to improve her credit rating. “It is truly a nightmare,” Fitzpatrick says.

Stories like Fitzpatrick’s are all too common among student loan borrowers, as the Createc survey shows. One might assume that between the poor survey results and the numerous complaints being brought to MPs, the feds would be convinced to try to improve the public program. But although NSLSC is funded by taxpayers, it is not run by the government at all — but an American company. And aside from the fact that this means that the American government has access to Canadians’ student loan information under the Patriot Act, the company has also put its own interests above the the interests of students.

The process of privatization began in the early nineties, when the federal government stopped operating the then publicly-run NSLSC. They outsourced it to Canada’s major banks, which created their own call centres. Then in the late nineties, according to a 2000-2001 HRDC review of Canada’s Student Loan Programs, “lenders signalled their unwillingness to continue.” The feds then switched the program to a direct financing model — meaning the government directly provided the capital for the loans. The feds also tendered a contract for the operation of a new NSLCS. In reply, CIBC created a company called EDULINX out of their pre-existing call centre, bid for the contract, and won.

Since then, the NSLSC has gone through a flurry of different operators, and the quality of service has been poor. According to the March 2007 Canadian Student Loan Program client satisfaction survey, 19 per cent of clients did not believe they were treated fairly by the NSLSC, 16 per cent found the NSLSC staff to be discourteous, and 23 per cent questioned the competency of the staff at the NSLSC. “Every time I talked to someone it was something different,” says Mosa, a former student who requested her last name be not be used. “They kept telling me that they were sending me the [interest relief] forms, and then getting mad at me for not filling them out, but I never got any. Not once.”

EDULINX operated the service centre for four years until the fall of 2004, when Nelnet Canada, the Canadian arm of an American corporation of the same name, bought CIBC’s creation. That same fall, its American division, that managed American student loans, was caught up in a major scandal. A US Education Department audit later revealed Nelnet had received $278 million in public money it shouldn’t have. Nelnet settled with the government and promised not to use the loophole again. The Washington Post described the events as “bureaucratic errors and congressional negligence on a scale so vast that it is hard to believe they can be accidental.”

Despite early reports of the scandal, Nelnet’s purchase went forward, putting the company in charge of Canadian student loans.

However, Nelnet wasn’t to last. In May 2007, the Resolve Corporation, a subsidiary of an American company called First Service, bought EDULINX from Nelnet for $13 million, plus a percentage of future revenues until March 2008, according to their press release. While Resolve doesn’t have the same dubious background as Nelnet, it is not without its own problems. Resolve is paid on a per-loans-in-repayment basis, meaning that the longer they keep students in debt, the more money they make. This pits their private interest — making money — in direct conflict with their ostensible mandate — assisting students by effectively administering loans.

Nelnet understood the tension between its interests and the interests of borrowers. In 2005, Nelnet filed documents with the American Securities and Exchange Commission that stated they were concerned that their profits would drop if borrowers paid off their loans too quickly.

The result of this clash of interests is shoddy service. This testimony was posted anonymously on by an employee of a Nova Scotia branch of the Resolve corporation: “They have such a ridiculously HIGH turnover they must hire people who have lower competency levels… And, the people they get to train you were merely trained recently.”

A Vancouver woman named Dianne Russell has intimate experience with this kind of conflict of interest. She went to school in the early nineties, and has had a loan since. About eight months ago her father received an inheritance, and decided to help her pay off her debt in full. She hired John A. Leblanc of the Canadian Financial Wellness Group, an organization that deals largely with student loan holders in crisis. After eight months of emailing and faxing NSLSC, Leblanc has been unable to figure out how much Russell owes.

“It’s really frustrating,” Russell says, “because I want to pay it down, and I can’t.” Her theory is that the NSLSC is putting off settling in order to prolong interest payments. “We’ve been stonewalled, at every attempt to nail something down… they’re basically refusing to tell me how much I owe,” she says.

Before this, her debt had been sent to collections, so the government had put a lien on her income tax return, which was supposed to have been going to her student loan. But the forensic accountant Russell and Leblanc hired could find no evidence that that money had been applied to her loan. “Where has my tax money gone?” she asks.

It’s a question that all Canadians should be asking of the NSLSC. The government is spent $66 million in 2006-07 on the service centre (in addition to $18.5 million paid to collection agencies). By 2009-10 NSLSC costs are projected to climb to almost $90 million. While this same conflict of interest could definitely apply to a publicly run NSLSC — governments try to make money too — at least this money would stay in the public sector, where it could be put towards more services and programs, rather than line the pockets of the stockholders of an American company.

Resolve’s contract does not come up for negotiation until 2013 and they can unilaterally extend it for five years; so it is unlikely that the NSLSC will change significantly any time soon. Nevertheless, there needs to be discussion about the poor service record of the NSLSC.

Under the current by-loans-held payment system, this will place student and government interests directly against the administrator of the loans. A publicly run NSLSC would be in the position align its interests with the interests of borrowers, rather than being profit-driven. After all, the student loan system is a social program. The government’s stated purpose for the student loan system is to improve access to post secondary education.

Also, a public NSLSC would be more accountable, subject to stricter freedom of information laws, and more answerable to parliamentary reform.

Although the government would surely face higher payroll expenses if the NSLSC was brought back under the public wing, it would also benefit from lower turnover, resulting in more knowledgeable employees and better customer service.

Come 2013, it is imperative that students push for a new, publicly run NSLSC. Until then, loan holders like Jennifer Fitzpatrick and Dianne Russell will be forced to continue dealing with the inanities of the current system.

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