The Big Short author Michael Lewis has a new podcast out called Against The Rules, and in the most recent episode he starts with the story of his recent hassle over an identity theft incident. Someone had apparently borrowed $16,000 in Lewis’s name with Citigroup, and he’d since been hounded by collectors at all hours of the day, watched his credit score plummet, navigated various call center hells with both Citigroup and Experian (one of the credit agencies responsible for reporting your debts to other banks) in an attempt to get it worked out, and finally ended up at the Berkeley police station, where he was advised to go to file a police report as a first step towards clearing up the matter.
Lewis’s is far from the first story about the nightmare of identity theft (and frankly it’s kind of obnoxious hearing him talk about how he’s never bought anything on credit) but in telling it, Lewis asks a basic question that few of these stories ever seem to: if a person Lewis doesn’t know, commits fraud against a bank Lewis has never had an account with, why is the burden of cleaning up the mess on him? Lewis’s identity theft story is a framing device. The larger question is about consumer banking, and the outsize control we’ve given this industry over so many foundational aspects of our lives.
The next chapter is the story of a teacher in the Bronx, who’s been paying off her $70 thousand plus in student loans for more than 10 years. There’s a program designed to forgive student loans for borrowers in public service professions exactly like this, provided they make 120 on-time payments. Which is to say, a perfect borrower record for 10 years, which isn’t easy. It was a measure pushed through in that brief political moment in the wake of the 2008 financial collapse when congress actually had to seem like they were trying to reign in the excesses of the financial industry and do something to help their constituents.
The teacher says she had to find out about the program on her own, because her servicer, Navient, never told her it existed. And when she finally did find out about it, she spent hours on the phone, talking to representatives, applying, and faxing forms back and forth, often being told they were missing certain information, until she was finally enrolled. Or so she thought. She was counting down the days to her final payment. Once the finish line was actually in sight, her servicer informed her that not only was the goal actually not in sight, she was never enrolled and never qualified in the first place.
Her story is not an anomaly. A later study found that of the more than 28,000 applicants for the program, only 96 had been approved, a rejection rate of almost 99.7%. Again, student loan horror stories are nothing new (an indictment in its own right), but Lewis gets to the most salient point: Navient’s complete lack of incentive to help borrowers navigate their loan options, despite that theoretically being the company’s only reason for existing.
Navient is just one of a handful of student loan “servicers.” The government loans students money through the Department of Education, who then outsource the management of that loan to private companies, who make a fee for each borrower. They “manage” the repayment options, which encompasses things like the public service loan forgiveness program that the teacher was applying for.
Those companies’ only real incentive is to keep making fees on each loan while devoting as little of their own resources to it as possible — an incentive Lewis shows manifesting from the top all the way down to the entry-level employee. He talks to a former Navient call center employee who describes being advised to try to limit calls with borrowers to less than seven minutes. She was also trained to spend most of the call verifying the caller’s identity, current address, account number, etc., before the caller could even get to the reason for their call, a strategy Lewis compares to “running out the clock” in pre-shot clock-era basketball. The call center employees who were best at getting borrowers off the phone the quickest were the ones most valuable to the company, and soonest in line for promotions and such. Notably, it wasn’t the employees who were most knowledgeable about repayment options or the best at helping customers find the best one for them.