Student loan borrowers brace for one vendor impact
Some see monopoly, but others say move could be ‘helpful’
President Trump believes there are too many companies servicing federal student loans. And he’s cutting that number.
Consumer advocates are concerned that granting the work of servicing federal student loans to just one company — from the current roster of nine — would worsen customer service and create a monopoly with too much power.
Secretary of Education Betsy DeVos, who wants to lessen the government’s involvement in the student loan business, says the move, announced Friday, will allow better monitoring of the selected vendor’s service and save taxpayers $130 million in five years. Here’s what borrowers can expect from the changes:
Q: GOVERNMENT’S WHAT ARE THE PLANS?
A: The Education Department says it’s juggling too many private-sector contractors and wants to streamline the process. The department, part of the executive branch, is the largest issuer of federal loans. Of $1.4 trillion of student loans outstanding, more than $1 trillion is issued by the Education Department.
But the department outsources the work of handling payment, collection, payment deferment and general customer service to nine private companies. Borrowers generally deal with these firms if they want to modify loans or have questions answered.
In the next few months, the Education Department will give the loan servicing work to one vendor after reviewing bids. Four of the nine companies will bid for the contract — Navient, Great Lakes Educational Loan Services, Nelnet, FedLoan Servicing (also known as Pennsylvania Higher Education Assistance Agency, or PHEAA). Great Lakes and Nelnet have formed a joint venture.
Q: LOANS? HOW WILL THIS AFFECT MY
A: Loan terms, such as interest rates and monthly payment, will remain the same. But the selected vendor will have a new system — including a new website and an updated payment processing mechanism — in place within 18 months of landing the contract. Q: ADVOCATES SOME CONSUMER SAY SERVICE WILL BE HURT. IS THIS TRUE? A: That outcome remains to be seen. But many, including student advocates, agree the current system needs improvement. But handing over the contract to one company will effectively create “a trillion-dollar bank,” says Natalia Abrams, executive director of Student Debt Crisis, an advocacy group.
The winner will wield significant influence in how student loan debtors repay, refinance, change payment schedules or seek lower monthly payments.
Q: THIS WHY IS DEVOS MAKING CHANGE?
A: The streamlining process started under the Obama administration, which wanted to cut the vendor list to four. DeVos says it’s difficult to oversee the work of nine service providers, and monitoring will be easier with one.
“Having a single servicer would be helpful, provided it’s done well,” said Persis Yu, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project.
“Implementation would be key, and implementation means having the resources to handle the job properly.”