Education Department to Revamp Student Loan Servicing

The U.S. Education Department announced plans to select one company to service student loans on its behalf, rather than the nine contractors that currently handle the federal government's $1.2 trillion portfolio of education loans, reports The Chronicle of Higher Education and The Washington Post.

The decision will take effect once the existing contracts end in 2019 and will reverse years of policies implemented by the Obama administration.  

James Manning, under secretary of education, told reporters that the Department will be better able to monitor one servicer and one platform. The single servicer will be responsible for oversight of subcontractors it hires to manage its portfolio, and if a subcontractor underperforms, the primary servicer would be punished, the Chronicle reported.  

"The approach may raise concerns that the Education Department will be overly reliant on a single student loan company," said Rohit Chopra, a senior fellow at the Consumer Federation of America and a former student loan ombudsman at the Consumer Financial Protection Bureau, in the Post. "The changes will certainly increase profits for the industry, but will do nothing to tame the high levels of default in the program."

In April, Secretary of Education Betsy DeVos withdrew several policy memos issued by the Obama administration to strengthen consumer protections for student loan borrowers. Other changes announced last week include eliminating requirements for the servicer to provide some information in Spanish and a reduction in outreach to borrowers in the income-driven repayment program. 


Related Links

The Chronicle of Higher Education

The Washington Post