In the last post, we warned the readers to be careful in dealing with servicers who have shown a tendency to push borrowers who are having problems paying back their loans into forbearance rather than giving advice as to how to get into income driven repayment plans.
In 2016, DOE officials, at the request of the Obama administration, sent out memoranda to servicers advising them to be more proactive in helping borrowers manage and/or discharge their debt (“2016 memoranda”). The problem from the servicers’ point of view is that providing the services requested in the 2016 memoranda would require more sophisticated representatives to deal with the borrower’s issues. Those reps need to be trained, and then be paid a salary commensurate with their enhanced abilities. Moreover, the reps will need to spend more time with borrowers to try to arrive at a workable plan. Bottom line- what the 2016 memoranda requested is much more expensive for servicers and, undoubtedly, will cut into their profit.
Servicing contracts for student loans are awarded on a multi-year basis by the Federal Student Aid Office. The current contracts are set to expire in 2019. The general consensus of experts in the area of student loan servicing was that the reforms called for in the 2016 memoranda would be considered seriously in evaluating which companies get the new contracts.
Navient is in consideration for the 2019 servicing contracts. In January, 2017, the CFPB and the attorneys general of Illinois and Washington filed lawsuits against Navient. Among the allegations were that Navient did not adequately inform borrowers about more affordable income driven repayment plans, lost paperwork and misapplied payments. The lawsuit, the numerous complaints by individual student loan borrowers to the CFPB ombudsman, and the attendant negative publicity associated therewith, could not enhance their chances of being awarded a new contract. One would think.
But, the pushback is well under way. About two weeks ago, the National Council of Higher Education Resources, one of the student loan industry’s main lobbyists, set letters to the House and Senate appropriations committees urging that Congress direct the DOE to look at the new servicing contracts to reduce unnecessary and burdensome requirements. This week, Education Secretary DeVos rescinded the 2016 memoranda stating that the proposed contract process has been beset by moving deadlines, changing requirements and lack of consistent objectives. DeVos emphasized that the DOE should create a loan servicing environment that provides the highest quality customer service while limiting the cost to taxpayers. No details on what any of that means. Navient shares increased in value by 2% of the day of DeVos’s announcement. So, Wall St. is betting on Navient being there when the smoke settles.
According to Rohit Chopra, the former student loan ombudsman at CFPB, the DeVos directive is a big win for companies that have run roughshod over borrowers.
What does this mean to the average student loan borrower? There may be a restrictions on repayment plans. But, if that happens, it will be down the line. On a more practical level, servicers will be given a more free hand to aggressively pursuing student debt. And don’t expect these servicers to be user friendly.
Our advice is to be pro-active, and to seek help early on in the process.