Democratic Lawmakers Push DeVos to Justify Loan Servicing Revamp

By Allie Bidwell, Communications Staff

A group of more than 150 Democratic lawmakers on Monday sent a letter to Education Secretary Betsy DeVos, asking her to provide more information on and reasoning to support the Department of Education's (ED) planned overhaul of the federal student loan servicing system.

The lawmakers said in the letter that the recent decision to select a single loan servicer to handle all federal Direct loans is "extremely alarming" and that doing so "could create a monopolistic, unresponsive, and inflexible student loan system that would produce poorer results for both borrowers and taxpayers." They also expressed concern that changes to ED's procurement process will harm borrowers by removing several requirements for certain standards previously developed by ED, Treasury, and the Consumer Financial Protection Bureau (CFPB).

In April, a group of 130 Democratic lawmakers wrote to DeVos to voice similar concerns over customer service and borrower protection after DeVos rescinded several Obama-era policy memos related to strengthening and improving student loan servicing. 

ED announced it would select a single servicer about one month after the memos were withdrawn. DeVos has said moving to a single servicer would provide greater accountability and simplify the repayment process for borrowers.

The existing student loan servicing process, DeVos wrote for The Wall Street Journal, "created a chaotic system that has resulted in numerous consumer complaints and multiple Government Accountability Office protests" and put in place "unsustainable requirements that could have put the entire student loan servicing system and all student protections at risk."

But in their letter, the Democratic lawmakers argued that removing these requirements and moving to a single servicer would put borrowers at risk, diminish customer service, and reduce ED's ability to provide oversight for the student loan servicing system.

"As stewards of taxpayer dollars, we owe it to all federal loan borrowers to build a servicing system that makes repaying loans easier, not harder, by providing high-quality customer service and puts students first," the letter said. "As amended, the current procurement does not meet these goals."

The lawmakers asked DeVos to "provide further justification for these changes," particularly the move to a single servicer.

 

Publication Date: 6/13/2017


David S | 6/13/2017 11:11:51 AM

Most students - not all, but most - have one servicer to make payments to. That other borrowers make payments to a different servicer is meaningless to them, it adds no confusion, they need not even be aware that other servicers exist, they only need to be familiar with their own.

So in addition to the disturbing thought of a private monopoly servicing federal loans (and given how conflicts of interest mean nothing to this administration, it's not a stretch to imagine DeVos herself well invested in the servicer that gets the contract), it's a continuation of a broader theme running through the Republican party of using the banner of simplification to make an inferior student experience. Loan repayment needs simplification because there are too many repayment plans, not because there are too many servicing contracts. And the Republican argument against ED servicing loans themselves is that it would be a monopoly, which provides inferior service because of a lack of competition. So the solution is to create another monopoly?

James C | 6/13/2017 8:23:01 AM

The loan servicers do the best they can given the numerous, overly complicated loan repayment options that are out there for borrowers. You need a finance degree to figure them out.

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