DeVos will ‘start afresh’ in reforming student loan payments

  • Education Secretary Betsy DeVos on Capitol Hill in Washington. After an outcry from senators and consumer advocates, the education secretary has scrapped a plan to hand a single vendor control over collecting loan payments. NEW YORK TIMES

New York Times News Service
Published: 8/7/2017 11:34:16 AM

WASHINGTON — Education Secretary Betsy DeVos last week scrapped a plan to overhaul the government’s system for collecting payments on $1.3 trillion in federal loans, canceling a contract procurement that would have handed management of nearly all aspects of the system over to a single vendor.

“By starting afresh and pursuing a truly modern loan servicing environment, we have a chance to turn what was a good plan into a great one,” DeVos said.

Most students who borrow for college use loans from the federal government to finance their studies. The Education Department outsources the work of servicing those loans — sending monthly bills, collecting payments and dealing with borrowers’ questions — to nine outside contractors. Their contracts expire in 2019.

Consumer advocates have complained that the system is overly complex and rife with poor customer service. Under President Barack Obama, the Education Department announced last year that it would replace that patchwork with a new, single web portal through which all borrowers would obtain information on their loans.

DeVos said in May that the department would stick with that approach, but with one major change: It wanted a single company to both build the new system and have the option of servicing all of the loans itself.

Putting the entire project in one vendor’s hands would be “more effective and efficient,” she said at the time.

But the department’s winner-take-all plan prompted a broad outcry from consumer advocates, lawmakers, and even the industry itself, which is accustomed to splitting up the government’s lucrative contracts for student loan collection among a number of entrenched vendors.

A bipartisan group of senators introduced legislation Monday, July 31, to block the Education Department from moving all federal student loans to a single company.

Sen. Roy Blunt, R-Mo., said that legislative action was needed to “prevent any one student loan servicer from becoming so large it poses a risk to taxpayers.”

He was joined by another Republican, Sen. James Lankford of Oklahoma, and two Democrats, Sens. Jeanne Shaheen of New Hampshire and Elizabeth Warren of Massachusetts.

“Maintaining choice and competition amongst student loan servicers is the best way to ensure they will continue improving services for student borrowers,” Blunt said in a statement. He called the department’s change of course “a step in the right direction.”

After canceling the contract solicitation, DeVos said that her department would still have a new system in place by 2019, when the existing servicing contracts expire, but she offered few specifics. A detailed plan, she said, will be developed under A. Wayne Johnson, the new leader of the agency’s Federal Student Aid office.

“There is a good deal of uncertainty about what the department will ultimately decide to do,” said Michael Tarkan, a senior analyst at Compass Point Research who studies student loans. “We were surprised to see them reverse course, but they had gotten a strong backlash.”

Johnson was appointed last month after the abrupt resignation of his predecessor, James Runcie, who was scheduled to stay through 2020. Runcie cut his term short after clashing with the Trump administration and DeVos.

Johnson, who now oversees the federal loans held by 42 million borrowers, was until recently the chief executive of a company that makes private student loans.

The new loan service system his office is developing will be “a customer support system that is as capable as any in the private sector,” he said in a statement. “We will take the best ideas and capabilities available and put them to work for Americans with student loans.”

Four vendors, all among the department’s current servicers, had remained in the running for the now-canceled contract: Navient, the Pennsylvania Higher Education Assistance Agency (known as PHEAA), and Nelnet and Great Lakes Educational Loan Services (which submitted a joint bid).

Keith New, a spokesman for PHEAA, said that the company supported “any changes to the process that results in better services to borrowers, students and families.” A Navient spokeswoman said that the company was looking forward to participating in the new process.

Any new system that the Education Department devises would affect millions of people. Loan servicers have tremendous power to guide borrowers through an often bewildering thicket of federal loan repayment options.

Some plans stretch payment periods out as long as 30 years, and others help qualifying students get a portion of their debt forgiven.

The government’s consumer bureau has repeatedly criticized the Education Department’s current servicers for not doing more to help borrowers make their payment schedules more manageable.

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