Student Loan Borrowers Lose Protection

Student loan borrowers and especially those in default now will have a tougher time, thanks to Education Secretary Betsy DeVos. She withdrew protections put in place by the Obama Administration aimed at making loan servicers more accountable and blocking high fees. 

In a memo to the Federal Student Aid Office, which oversees $11 trillion in student debt, DeVos told the staff to forget the Obama policies because they “have a lack of consistent objectives.” While she failed to explain what she meant, she did eliminate the protections that require accountability from loan services. These protections insist that borrowers get accurate information and prevent interest rates as high as 16 percent on loans. 

Advocates angrily denounced the move. The National Consumer Law Center’s Student Loan Borrower Assistance Project Director Persis Yu said, “It’s simply mind-boggling that the Department of Education would take away basic rights for borrowers.”

Recently, the Consumer Financial Protection Bureau (CFPB) sued Navient, once part of the government-backed Sallie Mae, for illegally cheating borrowers and failing to provide accurate information that would help them repay their loans. The CFPB charged the company with creating obstacles for repayment and causing borrowers to pay more than they should. 

Persis Yu said, “As the CFPB lawsuit against Navient demonstrates, problems with servicing are widespread and servicers’ practices can create obstacles to repayment resulting in costly problems for borrowers. Today’s action by Secretary DeVos could make it easier for the Department to hire servicers with a track record of harming borrowers.”

Here’s the memo from Education Secretary Besty De Vos announcing the policy change:

April 11, 2017

To: James W. Runcie, Chief Operating Officer Federal Student Aid

From: Betsy DeVos, Secretary, U.S. Department of Education

SUBJECT: Student Loan Servicer Recompete

As the Department strives toward our stated goal of increasing college access, affordability and quality, it is imperative to exercise due diligence in acquiring new federal student loan servicing capabilities. Our mission in the student loan servicing procurement process is to provide high quality customer service to federal loan borrowers in a cost-efficient and effective manner. I write today to reiterate the importance of the task ahead and reaffirm the Department’s commitment to achieving its mission.

Unfortunately, this process has been subjected to a myriad of moving deadlines, changing requirements and a lack of consistent objectives. We now find ourselves in a situation where 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. As we move forward with this procurement, I am withdrawing (1) the June 30, 2016 memorandum to you from former Secretary John King, (2) the July 20, 2016 memorandum to you from former Under Secretary Ted Mitchell, and (3) the October 17, 2016 addendum to the July 20, 2016 memorandum to you from former Under Secretary Mitchell, to negate any impediment, ambiguity or inconsistency in the approach needed to accomplish this critical mission.

I greatly appreciate the work and effort you and your team have put forward thus far. Our work continues in earnest today. The student loan servicing procurement affords us a significant opportunity to improve outcomes and experiences for federal student loan borrowers, as well as demonstrate sound fiscal stewardship of public dollars. We must create 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.

We have a duty to do right by both borrowers and taxpayers, and I look forward to working with your team at FSA, as well as others, in order to acquire new federal student loan capabilities that will provide borrowers with the tools necessary to efficiently repay their debt.

Published by

Barbara Nevins Taylor

As the winner of 22 Emmy Awards and a slew of journalism honors and awards, I created ConsumerMojo.com to give you the straight story about complicated stuff. Tell us what you want to know and we'll get you the answers.