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However, with the guidelines withdrawn, Navient is a bigger contender for a slice of the student loan pie.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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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.23% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
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The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
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