DeVos rescinds
Obama protections for borrowers
EDITOR'S NOTE: These changes benefit student loan giant Navient which is one of Rhode Island's primary targets for shareholder action. More details HERE.
Education
Secretary Betsy DeVos withdrew
student loan borrower protections put in place by the Obama administration, a
move that steps away from accountability and opens the door for
"rogue" servicers, according to critics.
DeVos outlined the change in a memo (pdf) sent to James Runcie, the chief
operating officer of Federal Student Aid (FSA), in which she laments "a
lack of consistent objectives" and other "shortcomings" in the
current loan processing system, which as one observer sees it, was, in fact clear,
and "was built to make repaying loans easier."
The Washington Post explains the education secretary's action:
DeVos has withdrawn three memos issued
by former education secretary John King and his undersecretary Ted Mitchell.
One
of the directives, which was later updated with another memo, called on Runcie
to hold companies accountable for borrowers receiving accurate, consistent and
timely information about their debt.
The Obama administration requested
routine audits of records, systems, complaints and a compliance-review process.
It
also directed Runcie's team to base compensation on response time to answering
calls, completing applications for income-driven repayment plans, errors made
during communications, and the amount of time it takes to process payments.
Another memo insisted FSA
consider a company's past performance in divvying up the student loan
portfolio.
"The guidelines," Cory
Doctorow wrote at BoingBoing, "were enacted after the
Government Accountability Office found that the Department of Education's
outsourced debt-collectors were cheating borrowers and engaging in other
corrupt, negligent, and criminal practices."
That
oursourcing refers to the fact that "the federal government pays hundreds
of millions of dollars to companies such as Navient, Great Lakes, and American
Education Services to manage $1.2 trillion in student loans," the Post writes.
Bloomberg writes: "With her memo, DeVos has taken
control of the complex and widely derided system in which the federal
government collects monthly payments from tens of millions of Americans with
government-owned student loans. The CFPB [Consumer Financial Protection Bureau]
said in 2015 that the manner in which student loans are collected has been
marred by 'widespread failures.'"
According to MarketWatch, the Education Department
"is currently in the midst of awarding a new lucrative servicing contract
to a single entity," with Navient being a finalist.
The
CFPB sued that company in January "for
systematically and illegally failing borrowers at every stage of
repayment."
Yet
the change ordered by DeVos "could make Navient a more likely contender
for that contract, government officials said," Bloomberg adds.
Student loan borrower advocates decried
the changes made by DeVos.
It "will certainly increase the
likelihood of default," said David Bergeron, a senior fellow at the Center
for American Progress who worked over three decades at the Education
Department, to Bloomberg.
"Secretary DeVos—with the stroke of
a pen—has reinstated the Wild West of student loans where servicers get to play
by their own rules, and borrowers get fleeced," said American Federation of Teachers
president Randi Weingarten.
"Her decision rescinds the most
basic protections student debtors have when dealing with servicers, like
expecting their bills to be accurate and their payments to be processed on
time.
And
she's opened the door for rogue operators such as Navient, which overcharged
service members and veterans millions of dollars, to win even more lucrative
government contracts.
If
Secretary DeVos were serious about curing America's trillion dollar student
loan crisis, she would strengthen, not rescind, these protections," she
continued.
The development comes less than two
weeks after the Education Department said that over 550,000 borrowers who were
led to believe that their loans would be forgiven after ten years of work in
the public service, may in fact be on the hook for those payments.
"Instead, she is enabling and
empowering bad actors. It's just another clear example of Betsy DeVos and the
Trump administration putting the interests of predatory profiteers over the
needs of the little guy—in this instance, the millions of people trying to go
to college or acquire career skills without being crippled by debt," Weingarten
said.
The change also drew condemnation from
Americans for Financial Reform, a Wall Street accountability nonprofit
coalition, which said it moved "the department toward
less accountability and worse service for student loan borrowers."
The group continued: "In order to
have accountability, there must be real consequences when servicers violate the
law. Secretary DeVos's actions today moves us away from true accountability,
and creates dangers for the very student loan borrowers the Department is
responsible for protecting."
