The Trump administration will soon consolidate federal student loan service providers, offering an exclusive contract to one company to service billions in outstanding loans.
Officials at the U.S. Education Department, led by Secretary Betsy DeVos, said that reducing the number of loan service companies from four to one would save money and increase efficiency. Critics argue that student borrowers would have no choice in such a monopoly, and that the company would have no incentive to strive for high customer service standards.
The move is another step in the overhaul of the system which began when former President Obama’s administration moved most of the $1.3 trillion business of student lending from banks and other companies to the federal government.
Four companies currently service federal student loans—Navient Corp, Nelnet Inc., Great lakes Educational Loan Services, Inc., and FedLoan Servicing which is also called PHEAA.
Navient is currently being sued by the Consumer Financial Protection Bureau over charges that the company misled borrowers regarding repayment options and their rights.
DeVos wrote an op-ed published Friday on The Wall Street Journal website in which she asserted that the Obama administration’s servicing policies created a “chaotic system” that resulted in numerous consumer complaints and was not sustainable. She contended that a single servicer will standardized processes.
Natalia Abrams, executive director of the advocacy group Student Debt Crisis, disagrees.
“With zero competition, we are concerned about a ‘too big to fail’ student loan company that has zero incentive to work for students, borrowers, and their families,” she said.
During the 2016 presidential campaign, Trump promised to remove government from the business of student lending, and recently raised limits on fees debt servicers can collect from some defaulted borrowers. According to The Washington Post, Trump will seek major changes to loan repayment in his forthcoming budget.
The CFPB reports that, during the past year, 1.2 million student-loan borrowers have defaulted and 90 percent of the highest-risk borrowers are not participating in affordable repayment plans.
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