The decision by Secretary of Education Betsy DeVos to rescind reforms making student loan servicers more accountable was just the latest salvo against student borrower protections that were built up the last several years.
The guidelines, put in place by the Obama administration last year, were rescinded even as problems mount with many of the companies that manage payments for students who take out federal loans, including Navient, the largest student loan administrator and the target of federal and state lawsuits.
The withdrawal of the guidelines comes as the Department of Education is issuing new contracts to the loan servicers. The reforms would have applied to the companies that win the contracts when the current agreements expire in 2019. Navient is one of the three finalists.
The shift means student borrowers need to be even more vigilant and research all repayment options on their own, double-check that their payments are credited properly, and always keep good records, among other precautions, consumer advocates recommend.
“The guidelines that were taken away laid out really basic, commonsense guidance for how servicers should act so that borrowers can navigate repayment,” says Suzanne Martindale, a staff attorney and education debt expert at Consumer Reports. “Removing these is incredibly shortsighted and will likely cause greater problems down the road for students and families.”
The guidelines called for major changes in student loan servicer practices, including new standards for responding to borrower problems in a timely way, providing economic incentives to give high-quality customer service, and imposing penalties for poor performance.
DeVos' move on Apri 11 is just the latest sign that the Trump Administration's Department of Education is shifting its focus away from reforms in the education loan industry, says Rohit Chopra, a senior fellow at the Consumer Federation of America and former student loan ombudsman at the Consumer Financial Protection Bureau (CFPB).
In March, DeVos rescinded a 60-day grace period to allow students in loan default to get back on track and avoid a fee of 16 percent of their loan balance.
Also last month, the Education Department said it would delay implementing the gainful employment rule, an Obama-era regulation that penalizes college vocational programs if graduates accrue more debt that they can pay with post-grad earnings.
"We have a couple of signs now that this administration is not taking consumer protection seriously," says Persis Yu, director of the National Consumer Law Center's Student Loan Borrower Assistance Project.
Critics of the Obama-era student loan regulations say it's difficult and unreasonable to expect loan servicers to comply with multiple layers of new rules.
The companies are for-profit enterprises that tend to have lower-skilled, lower-paid workers. The workers make their money by achieving repayment results, not by dispensing advice to borrowers.
Still, others assail the entire system, saying it's broken and that students are suffering. They believe student loan servicing should be handled by the government and the debt dischargable in bankruptcy, like credit card debt, among other reforms.
DeVos—appointed by President Trump and confirmed in early February—says the patchwork of new regulations is unfair and confusing to the industry.
Explaining her decision Tuesday, DeVos said the process for awarding contracts to loan servicers “has been subjected to a myriad of moving deadlines, changing requirements, and a lack of consistent objectives.” She said getting rid of the guidelines would remove impediments to efforts “to ensure borrowers do not experience inefficiencies in service.”
But her vague explanation didn't address a major issue facing student borrowers, and the main reason for creating the guidelines in the first place: Students need better information from loan servicers about the most suitable repayment options available, including income-based repayment plans that allow students in need of financial help to lower payments based on their current wages.
A Growing Problem
Problems with student loan servicers are well-documented and on the rise. The CFPB says it has handled more than 40,000 complaints related to education loan servicing and debt collection in the last five years.
Last month, the CFPB reported a 429 percent increase in student loan complaints about servicers from December through February, compared with the prior year. Consumers say servicers process payments incorrectly, make it harder for them to enroll in more affordable payment plans, and fail to act when borrowers complain.
Defaults are also rising sharply. Last year, 1.1 million federal loans were in default, up 15 percent from 2015, according to an analysis by the Consumer Federation of America.
Meanwhile, the case against Navient, brought in January by the CFPB and state attorneys general in Illinois and Washington, is still being fought.
The lawsuit alleges that even though a majority of federal student loan borrowers qualify for an income-based repayment plan, Navient provided inaccurate or inadequate information about the option. The CFPB has accused Navient of making it harder for borrowers to pay according to what they could afford, an illegal practice.
How to Handle Problems With Your Student Loans
The Department of Education estimates that about 1 in 4 student loan borrowers is in default or late on his or her loans. Seventy percent of those in default are eligible for lower monthly payments on federal student loans, according to a report by the Government Accountability Office.
If you have student loans and your servicer isn’t giving you the help you need, here’s what you can do to protect yourself:
Keep good records. Make sure you know what kind of loans you have and keep records of what you owe and the payments you’ve made. If they're federal loans—most student loans are—they'll be in this national database. Private loans don’t offer the same consumer protections and flexible payment plans that federal loans do. When you contact your servicer, keep a record of who you talked to.
Know your options. If you’re struggling to make payments and have federal loans, there are a number of different payment plans that can reduce your monthly bill. But the options can be confusing and student loan servicers often give out bad information. Use the Department of Education’s Repayment Estimator to calculate your federal student loan payments under each repayment plan. Or try the CFPB’s Repay Student Debt tool, which is an interactive guide that takes borrowers through their repayment options, especially when facing default.
File a complaint. Many student loan servicers have their own ombudsman whose job it is to help borrowers resolve problems, according to financial aid expert Mark Kantrowitz. If your servicer isn't helping you, you can file a complaint with the CFPB whether you have federal or private loans. For federal loans, you can also file a complaint on the Department of Education’s loan complaint site, which was launched in July.
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