Lesson for the nation’s education secretary: Serve public, not private interests
CHARLENE CROWELL | 5/1/2017, 11:13 a.m.
Center for Responsible Lending
This year’s swearing in of a new Congress and president signaled a surge of new ideas and approaches to government. However, no elected or appointed official should ever depart from or diminish the primary role of government: service to the American people. Ours was, is and must remain a democracy that affords every citizen the opportunity to become a productive and contributing member of society.
Yet in recent weeks, the Department of Education has taken a series of specific actions that depart from our creed and duty. By disregarding the needs of 40 million debt-laden student loan borrowers who collectively owe more than $1.2 trillion, it seems one of the Education Department’s top priorities is to respond to concerns of student loan servicers hired and paid with taxpayer dollars.
Where is a DeVos plan to address these still-growing concerns? With more philanthropic than administrative expertise, hearing from student borrowers, higher education officials and consumer advocates would provide insightful benefits to the new Education Secretary.
In 2016, the Consumer Financial Protection Bureau received 12,300 student loan complaints. Of these, the vast majority – 67 percent – concerned either their lender or their servicer. Another 30 percent of student loan complaints focused on fees, billing, credit reporting, defaults and fraud.
“More frequently than other issues, non-federal and federal student loan borrowers expressed their concerns relating to trouble with how payments are handled,” the CFPB stated in a report. “Borrowers complained of misapplied payments and inaccurate accounting of payments. Some borrowers complained of misapplication of payments and reported that payments were not applied to specific accounts, but rather applied to all accounts managed by the servicer.”
Ironically, servicer complaints made many mortgage borrowers frustrated too, especially during the housing crisis. Whatever the loan financed, borrowers were pleading with servicers to act responsively and fairly.
Despite minimal standards of accountability, on April 4, the National Council of Higher Education Resources, the organization that represents student loan servicers, wrote the Chairs and Ranking Members of the House Appropriations Committee and its Education subcommittee. In part, the letter wrote, “the amount that is paid to servicers is not sufficient to cover the currently requested services or the expected services that borrowers need to begin paying their student loans.”
In everyday language, that concern sounds a lot like, “You don’t pay me enough to do this job.”
Add to that interpretation the Trump administration’s proposed $6 billion budget cut to the Department of Education, and more money for servicers doesn’t seem likely anytime soon. Further, negotiations for new servicing contracts are expected to start this year. The NCHER letter could be interpreted as an unofficial start to those negotiations.
Just one week after NCHER wrote federal lawmakers, Education Secretary Betsy DeVos wrote James W. Runcie, the chief operating officer for Federal Student Aid, rolling back important guidance on student loan servicing. The now retracted guidance protected borrowers in three key ways:
Providing borrowers access to accurate information and consistent service.
Regular audits of both records and complaints to be used in compliance reviews.
Connecting servicer compensation to measurable actions such as payment processing time, length of response time to inquiries and errors.