Obama orders changes for student loan processing
WASHINGTON — President Barack Obama took administrative action Tuesday aimed at helping federal student loan borrowers navigate the repayment process and tightening rules for private companies servicing school debt.
Obama directed the U.S. Education Department to create a website that gives borrowers a simple way to lodge complaints about lenders, collection agencies and universities.
“It’s an executive action that we’re able to take to streamline and improve the manner in which the federal government interacts with students when it comes to student loans,” Obama said as he signed a presidential memorandum at the White House before leaving for a trip to talk about his “student bill of rights” at Georgia Tech in Atlanta.
The government also will create a centralized portal for borrowers to access information about and pay their federal loans, regardless of which contractor is servicing their debt.
The steps will help borrowers better understand who they owe money to and their options for lowering payments and avoiding default, according to the administration.
“The idea is to get ahead of students who are encountering challenges and make sure they have access to the information they need to help them manage their payments,” James Kvaal, the deputy director of the Domestic Policy Council, said.
The moves will increase pressure on private companies hired by the government to collect from borrowers defaulting on their loans. Critics say that the firms have insisted on stiff payments even when borrowers are eligible for deferment programs.
Last month, the Education Department severed ties with five companies, citing misleading statements to borrowers. The companies included Pioneer Credit Recovery, a unit of Wilmington, Del.-based Navient Corp., which was split off last year from SLM Corp., commonly known as Sallie Mae, the largest U.S. education finance company.
Navient had $65 million in revenue from Education Department collections last year. A 2012 Bloomberg News report found that firms collected an approximate $1 billion in annual commissions from their Education Department loan contracts.
Officials say they will use the data collected by the complaint system, set to come online July 1, 2016, to evaluate the practices of contractors and colleges. The program is intended to “acclimate” the administration with collection practices, according to Deputy Treasury Secretary Sarah Bloom Raskin. Raskin said that while the administration doesn’t envision replacing contractors with federal collectors, the pilot program would help them learn “what kind of enhancements” it could require of those servicing student debt.
The administration will also investigate whether it can use regulations or propose legislation to offer similar services and protections.
The White House has made college lending a central focus of the president’s economic agenda. In his State of the Union address in January, Obama proposed offering free community college tuition to certain students.