There are currently nine servicers to handle all federal student loans, with many being in place since the Affordable Care Act of 2010 which ended the Federal Family Education Loan Program program and replaced it with the current Direct Loan model. A battle is brewing in Washington that may limit those currently servicing federal student loans to one company. An exclusive contract offer from the Trump administration is in the works for just one entity to service the 1.3 trillion dollars in outstanding federal student loan debt currently on the books, with the sole company taking over in 2019.
The Move to One Student Loan Servicer
In mid May, Education Secretary Betsy DeVos issued a press release, publishing the 9th amendment to Phase II of the Education Department’s federal student loan servicing solicitation which was the first announcement of ED attempting to move to one loan servicer. According to sources, the contract is being fought over by three of the current loan servicing companies; Navient, GreatNet and PHEAA. Betsy DeVos was quoted as saying,
“the federal student loan servicing solicitation we inherited was cumbersome and confusing — with shifting deadlines, changing requirements and defacto regulations that at times contradicted themselves. Internal and external stakeholders both agreed it was destined for a massive and unsustainable budget overrun.”
And the Critics Say…
Those against the latest contract proposal believe that it will once again create a monopoly and whichever company is chosen, will have no incentives to improve upon the customer experience. Thirty-two million college borrowers will be beholden to just one company. It will be a massive undertaking in terms of ramping up enough representatives in order to tackle such a large influx of borrowers. Other negatives in the eyes of critics are the removal of Spanish language materials and the servicer will be able to erase options for a borrower to direct payments to one loan over another. “The changes may increase profits for the industry, but may do little to tame the high levels of default in the program,” explains Rohit Chopra of the Consumer Federation of America and also the former student loan ombudsman at the Consumer Financial Protection Bureau.
Navient’s Mixed Message Regarding Students’ Complaints
The Consumer Financial Protection Bureau (CFPB) is in agreement that some changes need to be made as complaints regarding all of the current services have increased at a rate over 400%. However, a majority of the complaints came before the CFPB took drastic action against Navient who borrowers said was cheating them out of some of the rights that they had under Obama administration rules. Navient has commented on the CFPB report, “there is no expectation that the servicer will act in the interest of the consumers,” they said in the March 24 filing, adding that courts routinely agree that servicers and lenders “do not owe borrowers any specific fiduciary duties based upon their servicer/borrower relationship.” This is in contrast to what the CEO has said publicly, “at Navient, our priority is to help each of our 12 million customers successfully manage their loans in a way that works for their individual circumstances.”
Change Is Coming to the Student Loan Payment Process
The bottom line is that it looks like there will be some very serious changes coming to the loan payment process that will impact anyone who has borrowed a federal student loan and is still dealing with one of the current servicers. Like all other massive upheavals to federal programs, it is not without controversy and its critics. HEAG will continue to bring you the latest information as it comes available.