Xerox Under Federal Investigation Over Student Loan Business

Regulators are looking into errors over the course of a decade at the company's educational services unit, which manages student loans on behalf of big banks.

Xerox's student loan business, which now manages more than 2 million loans, is under federal investigation after revealing more than a decade of errors to regulators, including overcharging some borrowers, BuzzFeed News has learned.

Xerox Education Services, formerly known as ACS Education Services, has serviced federally backed loans on behalf of big banks including Wells Fargo and JPMorgan Chase. The investigation, which has not been previously reported, was disclosed in a quarterly loan servicing report by Chase, which said it had been informed in this September that the "Department of Education and the Consumer Financial Protection Bureau approved a remediation plan to address outstanding servicing issues."

A person with knowledge of the matter confirmed to BuzzFeed News that Xerox is under investigation by the CFPB. The agency has been scrutinizing the student loan industry in recent months, and in September released a report highlighting servicing errors on hundreds of thousands of student loans.

As early as 2006, Xerox made errors in servicing federally backed loans it handled on behalf of big banks, according to an official at the Department of Education who spoke to BuzzFeed News on background. Those inaccuracies led to overcharging some borrowers and miscalculating the payments of others. They went unaddressed and unreported by Xerox, the official said, until 2014.

The department said it had been working with Xerox to fix the problem, alongside the CFPB, by ensuring that borrowers who overpaid on their loans received refunds and were not required to pay for any increases that resulted from Xerox's errors.

"Xerox regrets any inconvenience these financial adjustments may cause," said Kevin Lightfoot, a Xerox spokesperson, in a statement to BuzzFeed News. The company is "taking proactive action" to address the problem by notifying borrowers and correcting any inaccurate balances. "Xerox reported these inaccuracies and its remediation efforts are on track," he said. The company did not respond to questions about the CFPB investigation.

After student loans are made by banks or the government, servicers like Xerox act as a point of contact for borrowers, handling billing, determining monthly payments, and enrolling them in programs like income-based repayment. Xerox's education unit currently services about $30 billion worth of student loans.

Servicers have come under scrutiny from regulators including the the CFPB, which found widespread errors, affecting millions of borrowers, in a September report on the sector. In 2014, the U.S. Government Accountability Office criticized the Department of Education for a lack of oversight of the industry.

Xerox services loans issued under the now-defunct Federal Family Educational Loan (FFEL) program, which included the popular Stafford and PLUS loans. In December of last year, according to the Chase report, Xerox told the bank it had "failed to properly make certain financial adjustments for some FFEL student loan accounts." Though Xerox initially told Chase that the issue "affects only a small percentage of borrowers," it later made disclosures concerning "additional errors."

An Education Department official, who spoke on background, told BuzzFeed News Xerox disclosed the errors to the department in December 2014. "At no point between 2006 and December 2014 was the issue disclosed to the government, or otherwise resolved," the official said.

The September analysis by the CFPB found that after servicing of some 2.5 million student loans was transferred to another company, the new servicer found problems with 1 in 5 of the accounts. The CFPB report was anonymized, but a source with knowledge of the report told BuzzFeed News that the original servicer was Xerox.

According to the CFPB report, some 500,000 accounts had incorrect balance information; others had been improperly put into forbearance; and some had made payments that went missing altogether.

Until 2013, Xerox had an exclusive contract with the Department of Education to mange some $140 billion of direct student loans owed by more than 10 million borrowers, in a program separate from the company's FFEL loan portfolio. This massive government contract was not renewed because the company had "improperly handled" the servicing of the loans, according to Jeff Baker, an official with the Office of Federal Student Aid.

Any actions taken against loan servicers could have broader-reaching repercussions, said Rohit Chopra, a senior fellow with the Center for American Progress and the former student loan ombudsman for the CFPB. "Big banks outsource their student loan servicing, but they can still get hit with fines if the servicer violates the law," Chopra told BuzzFeed News.

Earlier this month, the Wall Street Journal reported that Wells Fargo — whose portfolio of loans Xerox's student loan business once serviced — was under investigation by the CFPB over practices related to student loan servicing.

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