Relatively new federal guidelines intended to to make the student loan repayment process more accurate and transparent have all been rescinded today by Secretary of Education Betsy DeVos — a move that consumer advocates says removes accountability for debt collectors and loan servicers.
Last summer, the Department of Education, in consultation with the Consumer Financial Protection Bureau, released enhanced guidelines aimed at crafting the way in which the federal government contracts with outside companies to service federal student loans in order to ensure borrowers get the service and protection they deserve.
But today, in a memo sent to the Federal Student Aid office, Secy. DeVos withdrew two pieces of guidance from 2016 that required FSA to consider servicers’ past behavior when awarding contracts, including whether the company had misled or provided wrong information to borrowers or engaged in abusive consumer service.
In her letter [PDF], DeVos made vague claims that the previous administration’s processes lacked “consistent objectives.”
The Secretary also called for the creation of a “student loan servicing environment that provides the highest quality customer service and increases accountability and transparency for all borrowers, while also limiting the cost to taxpayers.”
However, critics counter that DeVos’ decision will remove critical protections for student loan borrowers.
“It is utterly baffling that Secretary DeVos would undo guidance that asks servicers to do the basic things that anyone – literally anyone – would expect a loan servicer to do, like respond to questions and help people access repayment plans they have a legal right to use,” Suzanne Martindale, policy counsel for our colleagues at Consumers Union, said. “Today’s move is very shortsighted and could lead to an even bleaker picture for student borrowers who are already struggling.”
Americans for Financial Reform condemned the Department’s move, adding that rescinding the memos pushes servicing toward less accountability and worse customer service.
“In order to have accountability, there must be real consequences when servicers violate the law,” Alexis Goldstein, senior policy analyst for AFR, said in a statement. “Secretary’s DeVos’s actions today moves us away from true accountability, and creates dangers for the very student loan borrowers the Department is responsible for protecting.”
Issues with student loan servicing have come to the forefront in recent months.
Last year, the Government Accountability Office found an immediate need for significant improvement to the way in which the DOE contracts with and monitors the performance of servicers that handle billing and other services for borrowers.
The GAO report [PDF] found, among other things, limitations in borrowers’ access to federal service call centers, the department’s complaint tracking and other areas.
More recently, the CFPB sued Sallie Mae spin-off Navient, accusing the nation’s largest student loan company of allegedly cheating borrowers out of repayment rights.
The company recently provided an example of some of the issues consumer advocates see with student loan servicer, by explaining in a filing to the lawsuit that was under no obligation to actually help student loan borrowers.
Persis Yu, Director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, says it’s “simply mind-boggling that the Department of Education would take away basic rights for borrowers,” particularly after the Navient allegations. “Today’s action by Secretary Devos could make it easier for the Department to hire servicers with a track record of harming borrowers.”