The Department of Education, under President Trump’s pick Betsey DeVos announced last week that it will turn over student loan servicing to just one company. The move on part of the government is an effort to streamline a process that got confusing and unwieldy under the former administration.
In a press release Friday (May 19), Education Secretary DeVos said the federal student loan servicing solicitation under Obama’s White House was “cumbersome and confusing—with shifting deadlines, changing requirements and de-facto regulations that at times contradicted themselves. Internal and external stakeholders both agreed it was destined for a massive and unsustainable budget overrun.”
By giving the contract to just one student loan servicer, DeVos claimed that it will save taxpayers more than $130 million over the course of the next five years. She also asserted that borrowers will get a more “user-friendly loan servicing interface, shorter email and call response times and an improved payment application method.” She also noted that the change in loan servicing solicitation does not impact repayment plan requirements.
In a Wall Street Journal op-ed piece from late last week, DeVos said the Obama system was “chaotic” and resulted in a slew of consumer complaints. One of her points revolved around having a single servicer as a user platform, standardizing and centralizing the process for dealing with customer complaints and calls.
The announcement on the part of the Department of Education fulfills one of President Trump’s campaign promises to pull the government out of student loans and streamline programs with an eye toward saving the government and taxpayers money. Critics however contend that it will result in poorer customer service for borrowers.
“With zero competition, we are concerned about a ‘too big to fail’ student loan company that has zero incentive to work for students, borrowers, and their families,” said Natalia Abrams, executive director of the advocacy group Student Debt Crisis, in an interview with CNBC. In the current system, four companies’ service federal student loans with Navient, which was spun off of Sallie Mae, acting as the biggest. The others include Nelnet, Great Lakes Educational Loan Service and FedLoan Servicing.
Navient is currently embroiled in legal fight with the Consumer Financial Protection Bureau which earlier in the year filed a lawsuit contending the student loan servicer cheated borrowers out of billions of dollars by creating obstacles to paying back loans. According to the CFPB, the company provided borrowers with faulty information about paying backing loans, processed payments incorrectly, and failed to act when borrowers complained. Navient has fired back by vowing to fight the CFPB’s claims; the servicer recently asked a court to toss out the lawsuit.
This isn’t the first time the Trump Administration has moved to roll back some of the Obama era protections for student loan borrowers. In March, the Department of Education announced that it was rescinding a rule that prevents student loan servicers from adding collection fees on defaulted loans as long as the borrower is in repayment or rehabilitation within sixty days of default.
Author: Andrew Rombach
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