A Warning To Those With Student Loans
If you are one of 43 million students across the United States who have borrowed or are borrowing federal student loans to pay for higher education, you best be paying attention to what is going on right now in the Department of Education under Secretary Betsy DeVos.
In her confirmation hearing back in January, DeVos affirmed in questioning by Senator Elizabeth Warren that she has had no personal experience with student loans, or professional experience managing any comparable program.
Which is why is comes as no real surprise, but still very great concern, when it was announced this week that under her leadership, the Department of Education would be withdrawing policy memos – or reversing stance – from the Obama Administration, which sought to establish guidelines for loan-servicing companies and improve protections of the rights of student loan-borrowers.
The original memos, proposed reforms, and protections were in response to findings by the federal Consumer Financial Protection Bureau (CFPB).
Currently, the federal government sub-contracts nine different loan-serving companies to collect student loan payments. In an October 2016 report, the CFPB found,
“A range of payment processing, billing, customer service, borrower communications, and income-driven (IDR) plan enrollment problems.”
For example, student-loan borrowers experienced a range of hidden fees, poor communication which in many cases resulted in missed payments, and those in default on loans were not given proper guidance.
Counseling on loan repayment is a major function of these companies, and what information they provide, or chose not to provide, has major impacts on the financial futures for millions of Americans.
A study at the Government Accountability Office found that 70 percent of people in default could qualify for lower monthly payment through income-driven plans, but their loan-servicing providers did not provide them with this information.
Under these Obama Administration guidelines, for contracted loan-servicing companies to do business with the Department of Education and millions of students in this $1.3 trillion industry, they would have to meet minimum expectations such as how they counseled and communicated with borrowers, and prove they are reliable.
This is no longer the case.
Last year, the Obama Administration was looking to consolidate the many different loan-servicing companies used, and streamline the process by choosing just one company instead of nine.
The bidding process was highly competitive, given its size and scope. The merit of using one versus several loan-servicing companies is a separate debate, and it is unclear if DeVos will continue down this path towards a single service-provider, or re-open it to more.
Nonetheless, given the Department of Education’s new stance lightening up protections for borrowers, companies that the Obama Administration may not have considered reliable enough or concerned enough about the best interests of students now have a better chance in the running.
One example is the loan-servicing company Navient, which is currently facing government lawsuits for “predatory lending” and other troubling practices.
According to Bloomberg, Navient’s stock went up 2 percent just after the DeVos’ statement.
Federal student loan borrowers, the 43 million of us, must remain vigilant in following these developments. Given the sheer number of borrowers, we have the power to pressure the Department of Education and hold them accountable.
The rescinding of policy memos may seem insignificant, but opening the door to bad practices by loan-servicers can have profound impacts not just on our futures, but the future of our economy and higher education.