While we were all distracted by other things Tuesday, Betsy DeVos used her powers as education secretary to roll back some key policy memos issued by the Obama administration that strengthened consumer protections for student loan borrowers.
The Washington Post reports that the U.S. Department of Education is in the process of issuing new contracts to the student-loan-servicing companies that collect payments on its behalf. These companies are tasked with placing borrowers in affordable repayment plans and preventing them from defaulting on their loans.
Amid consumer complaints over poor communication, mismanaged paperwork and payment-processing delays, the Obama administration included some contract requirements intended to improve the quality of loan servicing, but companies complained that the requirements would be expensive and unnecessarily time-consuming.
On Tuesday, in a letter addressed to James W. Runcie, head of the Federal Student Aid office at the Education Department, DeVos said: “This process has been subjected to a myriad of moving deadlines, changing requirements and a lack of consistent objectives. We must promptly address not only these shortcomings but also any other issues that may impede our ability to ensure borrowers do not experience deficiencies in service. This must be done with precision, timeliness and transparency.”
According to the Post, DeVos withdrew three memos issued by former Education Secretary John King and his undersecretary Ted Mitchell, including one that called for companies to be held accountable for providing borrowers with accurate, consistent and timely information about their debt.
From the Washington Post concerning those Obama-era memos:
The 56-page memo [pdf] called for the creation of financial incentives for targeted outreach to people at great risk of defaulting on their loans, a baseline level of service for all borrowers and a contract flexible enough to penalize servicers for poor service, among other things.
The Obama administration requested routine audits of records, systems, complaints and a compliance-review process. It also directed Runcie’s team to base compensation on response time to answering calls, completing applications for income-driven repayment plans, errors made during communications and the amount of time it takes to process payments. Another memo insisted [pdf] FSA consider a company’s past performance in divvying up the student loan portfolio.
Alexis Goldstein, senior policy at Americans for Financial Reform, told the Post, “In order to have accountability, there must be real consequences when servicers violate the law. DeVos’ actions today moves us away from true accountability, and creates dangers for the very student loan borrowers the department is responsible for protecting.”
That particular list of demands came as a result of an outpouring of complaints to both the Education Department and the Consumer Financial Protection Bureau about the practices of some loan servicers.
More from the Washington Post:
The CFPB, in particular, has documented instances of servicing companies providing inconsistent information, misplacing paperwork or charging unexpected fees. Because the federal government pays hundreds of millions of dollars to companies such as Navient, Great Lakes and American Education Services to manage $1.2 trillion in student loans, advocacy groups and lawmakers argue that more should be required of these contractors.
As previously reported by The Root, the CFPB filed a federal lawsuit earlier this year alleging that Navient, the nation’s largest servicer of student loans, has misled borrowers for years with respect to its policies and practices, costing them millions of dollars.
The company formerly known as Sallie Mae is the largest servicer of student loans in the United States. It services the loans of 12 million borrowers, including 6 million under a contract with the U.S. Department of Education, and handles more than $300 billion in federal and private student loans.
According to the suit, Navient and its preferred collector, Pioneer Credit Recovery, engaged in “unlawful acts and practices in connection with defendants’ servicing and collection of student loans.”
The suit alleges that Navient has failed at its core duties by deterring borrowers from obtaining access to long-term, affordable repayment plans and misleading them on how forbearance can be more costly to them in the end. It says that Navient buried a lot of useful information for borrowers in small print and, in other instances, hid information altogether that might have helped borrowers make better decisions about their repayment plans.
More from the Washington Post:
Navient chief executive Jack Remondi, in an interview with the Washington Post earlier this year, said the government has too many inconsistencies in regulations and standards governing servicing companies. His company is battling multiple lawsuits that accuse Navient of steering people into costly payment options, rather than take the time to offer the best solutions—charges that Remondi vehemently denies.
DeVos said in her letter Tuesday that the new contract would provide an opportunity to improve borrower outcomes and demonstrate “sound fiscal stewardship” of taxpayers dollars.
Of course, all of this comes at a time when the Department of Education is facing $9 billion in proposed budget cuts. The Post reports that the Trump administration is redirecting money away from higher education programs and into its school choice agenda.
Read more at the Washington Post.