Feds Renegotiate Student Loan Servicing Contracts

Late last week, the U.S. Department of Education announced it had renegotiated its contracts with federal student loan servicers, responding to growing criticism that its oversight of those companies is inadequate, Inside Higher Ed reported.

The revamped agreements are aimed at creating better incentives for the companies to provide good customer service and make sure that borrowers are repaying their loans on time. Under the new terms, servicers will receive bonuses for reducing the delinquency rates of their borrowers and borrower feedback will figure more prominently into the formula that dictates how many new accounts the servicers receive each quarter. The department also said it would explore additional changes to the federal direct loan program and pledged to solicit suggestions from student borrowers.

"All hard-working students and families deserve high-quality support from their federal loan servicer, and we are continuing to take steps to make sure that is the case," Education Secretary Arne Duncan said in a statement.

President Obama hinted at plans to renegotiate the contracts in June, but Friday's announcement provided more detail. The new contracts are just one part of the Obama administration's push to reduce student loan debt. The White House in June also announced that it planned to expand eligibility for income-based repayment, a program that caps borrowers' payments at 10 percent of their income. The Education Department announced plans this week to begin that process.


Related Links

Inside Higher Ed