On Tuesday, Secretary of Education Betsy DeVos rolled back more Obama-era student loan protections.
A memo issued by DeVos to James W. Runcie, who oversees Federal Student Aid (FSA), overturned Obama administration directives requiring FSA to hold student loan servicers accountable for working in the best interests of borrowers.
This is the latest in a series of regulation reversals since DeVos’s appointment; last month, the Department of Education got rid of a rule barring debt collectors from charging huge fees on defaulted student loan debt.
What’s included in the new rollback?
These memos came after ongoing complaints about the practices of student loan servicers. The Consumer Financial Protection Bureau (CFPB) released a report last fall detailing some of these issues.
Loan servicer contracts with FSA are up for renewal in 2019. The Obama requirements would have rewarded servicers that help borrowers stay on track with repayment and reduce errors. They would also have put new contracts at risk for companies that mislead borrowers and are slow to respond to customer complaints or questions.
However, the rollback will allow these contracts to go forward without the rigorous review required by the previous Obama administration.
How does the rollback impact servicers?
Earlier this month, the National Council of Higher Education Resources, a student loan industry lobbyist, sent letters to Congress about Obama-era rules. The letters claimed the Obama administration’s requirements are burdensome and expensive.
DeVos’s actions allow servicers to continue business as usual for now. One of the student loan servicers that might stand to gain the most from this rollback is Navient.
Navient is under pressure from lawsuits and a complaint from the CFPB. Under Obama administration rules, Navient’s contract with FSA could have been in jeopardy due to their pending legal issues and allegations of borrower abuse (which Navient denies).
However, with the guidelines withdrawn, Navient is a bigger contender for a slice of the student loan pie.
Do student loan borrowers have enough information?
A Government Accountability Office (GAO) report from 2015 indicated that a large percentage of borrowers in default qualify for a lower monthly payment through income-driven repayment plans, but those borrowers weren’t made aware of their options.
According to the GAO report, the Department of Education wasn’t providing enough information about repayment. The Obama administration guidelines would have partially put some of the responsibility for educating consumers on the servicers actually handling the loans.
The more thorough servicer review process requested by the Obama administration would have potentially punished servicers who didn’t inform borrowers about all of their options, including repayment plans and forgiveness programs.
Now that DeVos has instructed FSA to disregard this guidance, servicers will not have to implement new borrower-friendly policies in order to renew their contracts with the government.
“This heightens the tension between borrowers who are already struggling to understand how they can best repay their student loans and student loan servicers who seem to be actively working against their best interests,” said Jay Fleischman, a lawyer specializing in resolving student loan debt issues.
“This undoes the work of the previous administration toward encouraging transparency and holding servicers accountable,” Fleischman continued. “Now the Department of Education is backing servicers who are flat-out saying they don’t have to do anything to inform borrowers of their options.”
Betsy DeVos vs. consumer advocates
In her memo, DeVos cited the need to provide “high-quality customer service to federal loan borrowers in a cost-efficient and effective manner.”
DeVos also used the memo to imply that the Obama-era rules were inconsistent and ambiguous, and that FSA now has “a significant opportunity to improve outcomes and experiences for federal student loan borrowers, as well as demonstrate sound fiscal stewardship of public dollars.”
However, Fleischman disagreed. “This puts the Department of Education in an adversarial position to the borrowers, with little consideration of their ability to repay,” he insisted. “You’re giving companies with the power to collect carte blanche in the way they do this.”
With this new attitude, Fleischman said, student loan borrowers have been put on notice: “It’s all ‘borrower-beware.’ It’s on you to find all the information — even though the system makes it practically impossible to get what you need to know.”
Learn more about your options
If you’re struggling to understand your student loan repayment options, learn more about income-driven repayment, use calculators to manage your payments, and take steps to prevent student loan default.
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