This week, I had the opportunity to speak to a Rotary group about student loans. I have been a member of Rotary, an international service organization, since the late 1980’s. All clubs meet on a weekly basis. A meal is shared and then club business is addressed. At least 1-2 times per month, there is a guest speaker.
During the lunch, I had the opportunity to speak with the Rotarians at my table, all of whom have adult children who are finished with school. All remarked how expensive college and graduate schools have become over the last 25 years, and that the high cost of post secondary education was postponing young people from marriage, buying a home, and/or having children. The consensus was that this is not good for society. I agree. What was interesting about this conversation was that they all were of the opinion that a the biggest culprit for this almost exponential increase in post secondary education costs was the federal government. (and this was a town that went blue in 2016). They reasoned that by making money readily available to students, the federal government actually encouraged schools to raise their costs of attendance far beyond the rate of inflation. Although there are many reasons for the increasing in cost of education, they certainly have a point.
My speech went about 5 minutes over what I had planned, but only 2 or three of the audience appeared to be glazing over or nodding out. Most of the presentation dealt with federal loans- the programs (Direct Loan, FFEL, Perkins); types of loans (Stafford, Parent Plus, Grad Plus, Perkins); deferments and forbearances; repayment plans (Standard, Graduated, and the various income driven plans); and how you get into and out of default. The presentation concluded with a brief discussion on private loans and bankruptcy. While the group seemed attentive, they did not react much until I started speaking about loan servicers. That led to more than a few groans and chuckles.
After the talk, I had the opportunity to speak with 3 audience members who had specific questions. All started out by saying that either they or their children had been trying in vain to get straight answers from their loan servicers. Given their comments and the general reaction during my speech, even the casual observer senses that servicers are not doing a satisfactory job.
This anecdotal evidence is borne out by the fact that the Consumer Financial Protection Bureau (CFPB) has sued Navient, the largest servicer of federal and private loans, for failure to properly advise students about their options, losing documents and misapplying payments, among other things. The Bureau seeks to obtain permanent injunctive relief, restitution, refunds, damages, civil money penalties, and other relief for Defendants’ violations of Federal consumer financial laws.
It does not give students and their parents much confidence when the largest servicer of student loans is being sued by the government for failing to do its job.
The new administration knows that there is a problem with student loan servicing. One of their solutions is to reduce the number of servicers to a single servicer. I do not think that is a good idea. With no competition, what incentive would this lone servicer have to fly right (especially considering that the administration is also vowing to eliminate the CFPB)? Another solution is that servicing should be turned over to the IRS. As crazy as this sounds, there is some bi-partisan support in Congress for this action.
IMHO, none of the proposed solutions to the servicer problem will insure good service to the consumer. In the short run then, students and their parents might consider consulting and utilizing experienced student loan counselors (either attorney or non attorney) in assisting them with servicer and other student loan issues.