Betraying borrowers
Why make it tougher for payers of student loans?
Education Secretary Betsy DeVos has withdrawn Obama administration guidance that would have required the companies that service federal student loans to accept consumer-protection clauses as part of their new contracts.
But if the servicers don’t want to serve borrowers, maybe Congress should remove the servicers from the system.
Because people who take out student loans can’t always repay them on schedule, federal law allows borrowers to make or skip payments based on their income. But the rules are complex. And borrowers not only have to work with their servicers to get on the right plans, they often look to their servicers to tell them what options they have. Yet the Consumer Financial Protection Bureau has caught servicers losing track of paperwork and giving out inconsistent information.
The Obama administration said that in awarding new loan-servicing contracts — the current ones expire in 2019 — bureaucrats should consider the servicers’ past performance. And it said the contracts should include consumer protections.
The Obama team was obviously right. Why have contracts expire if renewal won’t depend on performance? And since the student-loan system exists to help borrowers pay for their education, not to make a profit for the lender (the federal government), borrower service is a big part of what the servicers are being hired to do.
Yet a lobbying group for the student-loan servicers complained that even under the current contracts, they had been subjected to new requirements and given inadequate compensation. And Ms. DeVos appears to be siding with them against the millions of Americans who owe student loans. This is the second time she’s done that; she also dropped an Obama-era rule designed to protect borrowers who default. That’s unfair.
If the companies aren’t willing to take responsibility for customer service, Congress should look for alternatives. Perhaps the Education Department can administer the loans itself. Or perhaps the IRS, which has experience getting people to pay based on their income, should do it. One way or another, the government must make the student-loan repayment process work for the people caught up in it.