Betsy DeVos Scraps the Single Student Loan Servicer Proposal

On Tuesday, August 1st, Department of Education Secretary Betsy DeVos scrapped her plan for contracting just one student loan servicer company to handle all federal student loans after the idea saw strong bipartisan resistance.

The Department of Education issued a press release on Tuesday that stated the Trump administration was leaving behind initial plans to award a single student loan company a massive contract, one that would require it manage all monthly federal student loan payments from student debtors.

Instead, Betsy DeVos and her department plan on working towards the development of a new plan that will be focused around improving customer service for student debtors. “Doing what’s best for students will always be our number one priority,” said Sec. DeVos, “By starting afresh and pursuing a truly modern loan servicing environment, we have a chance to turn what was a good plan into a great one.

Dr. A. Wayne Johnson, the newly appointed Chief Operating Officer (COO) of Federal Student Aid (FSA), had the following to say: “The FSA Student Loan Program represents the equivalent of being the largest special purpose consumer bank in the world. To improve customer service, we will take the best ideas and capabilities available and put them to work for Americans with student loans.”

Specifically, the Department of Education is planning to provide a single data processing platform that will host all student loan information. Additionally, customer account servicing could be conducted by either one student loan servicer or by multiple servicers, but that detail has yet to be ironed out.

The Education Department’s new approach will call for separate contracts in database storage, system processing, and customer account servicing. The proposed approach by the Department of Education, dubbed the FSA Next Generation Processing and Servicing Environment, is expected to receive a flood of contract proposals from student loan companies.

Commenting in the press release, COO Dr. Wayne said, “When FSA customers transition to the new processing and servicing environment in 2019, they will find a customer support system that is as capable as any in the private sector.”

Betsy DeVos’ initial plan for a single student loans servicer was announced in late May. Describing the current federal student loan system as “cumbersome and confusing,” DeVos called for a more streamlined system that would reward the federal student loan contract to just one servicer. She also estimated that her proposal would save American taxpayers more than $130 million.

However, that plan was also met with much resistance from multiple fronts. A couple of weeks ago, LendEDU reported that the Missouri Higher Education Loan Authority (MOHELA), one of nine student loan companies that manages the federal government’s student loan portfolio, filed a protest against Betsy DeVos and the Department of Education’s plan for a single servicer. MOHELA was at risk of becoming a non-factor for federal student loan servicing once its contract expired in 2019.

Furthermore, the most recent proposal from the Department of Education came only hours after a bipartisan coalition came together to unveil legislation that would have blocked DeVos’ initial plans for a single student loan servicer to handle the federal government’s student loan portfolio. The bill was sponsored by two Republican senators, Roy Blunt (MO) and James Lankford (OK), and two Democratic Senators, Elizabeth Warren (MA) and Jeanne Shaheen (NH), and called for the Department of Education to keep the existing system of multiple student loan servicers in place.

According to LendEDU, there are 43.3 million student loan borrowers in the U.S. that owe a combined student loan debt of $1.41 trillion. More than $1.3 billion of that student loan debt is federal student loan debt, while the remaining debt is owed to private student loan companies. The average federal student loan default rate currently sits at 11.8 percent.