Guest Post by Deanne Loonin (attorney and advocate for low-income student loan borrowers)
Programs to help struggling student loan borrowers will only succeed if servicers effectively do their jobs and provide high quality information and assistance.
Servicers are a borrower’s primary point of contact. Ideally, they should provide borrowers with accurate and comprehensive information about their options and help them get relief. The reality of the current servicing system, unfortunately, is far from this ideal.
Quality, borrower-centric servicing is essential, but often overlooked in policy debates. The Obama Administration has started to pay attention, recognizing the flaws in the current system and announcing plans to create a new “state of the art” student loan servicing system.
Even though borrowers and their advocates must keep pushing to make sure borrower interests come first in this process, it is important to give the Department a chance to follow its words with meaningful actions.
Instead, some policymakers are opposing the proposal based on fears that a new system will lead to lost business for existing contractors. Not surprisingly, they are trying to “protect” businesses in their own districts even if those companies have not done their jobs, wasted taxpayer money and ruined borrowers’ lives. These reflexive objections based on provincial interests can block potentially meaningful reform.
A well developed and administered system could do a lot to help borrowers especially if the Department follows through on promises to create borrower rights that are:
- Accurate and actionable;
- Consistent; and
The Department also promises to hold contractors accountable.
The success of these proposals depends first on whether the Department will consider borrower concerns BEFORE creating a final system. The Department has announced plans to provide opportunities for public input, but no details. The later public input occurs, the more likely it will be little more than symbolic.
Borrowers and their advocates have many other questions. For example, the Department talks about awarding a single contract for servicing, but then possibly hiring additional contractors to provide other services to borrowers. It is unclear how this will work and also unclear if the Department intends to place most (or all) of the responsibility and power in one private entity. There were enough problems in the past when the Department relied on a single Direct Loan servicer to raise huge alarm bells.
There are other essential elements to a borrower-centric servicing system that have yet to be publicly discussed, including whether there will be:
- Rights to consistent, quality service that is enforceable by borrowers themselves.
- Financial incentives for high quality service and positive borrower outcomes.
We know from experience that servicers tend to act according to financial incentives, but as far as we know the Department has said nothing public about how it will incentivize contractors to comply with borrower-focused standards.
- Rigorous tracking of borrower-based outcomes and public access to data.
- Exclusion of companies tainted by past scandals and investigations.
For example, Senator Elizabeth Warren noted in a May press release that one of the current Department servicers Navient (formerly Sallie Mae) has not yet repaid the $22.3 million it still owes the federal government for overcharging for student loan subsidies. There are other companies that still owe past fines or are under investigation or companies such as the Pennsylvania Higher Education Assistance Agency (PHEAA), taking a very aggressive stance in court that it is immune from liability for violating federal laws.
The Department should heed Senator Warren’s reminder to “…keep the interests of students and their families….first and foremost as you make important contracting decisions regarding Navient and other student loan servicers.”
The government should also understand that while servicing is critical, it will not solve all that ails the current student aid system. There is much more to be done to prevent borrowers from taking on so much debt in the first place, to cut off access to federal funds by deceptive for-profit schools, and to ensure borrower justice and government efficiency. Further, some relief programs should be administered through group processes that eliminate the need for case-by-case, time-intensive evidentiary process. But it all starts with servicers who know what they’re doing and are held accountable when they harm borrowers and waste taxpayer funds.