On Tuesday, Education Secretary Betsy DeVos abandoned her own idea to monopolize student loan servicing.
In May, DeVos outlined a plan that would give power to a single company to service all federal student loans online. Her initial argument for a single service platform was to save money and take the hassle out of repayment for students. Previously, DeVos said the way students are repaying their loans is messy, calling the process “cumbersome and confusing.” Largely, big loan distribution businesses have been criticized by borrowers for a lack of customer service and responsiveness to their client’s concerns and questions.
This is possibly due to great resistance to the idea from lawmakers, financial aid experts, and the nine student loan companies who would have had to “duke it out” for the single spot. DeVos said on Tuesday she will be reviewing and revising the repayment process indicating that she is not going to follow through on a single servicer loan replacement plan.
Opponents to her original plan argue that a single company could not take on such a large amount of claims. The nation has accumulated over $1.4 trillion in student loan debt with more than 44 million borrowers, a task that many say is too large for one company to handle.
To ensure that the administration does not go back to this idea in the future, Sen. Roy Blunt (R-MO) and Sen. Elizabeth Warren (D-MA) put forth a bipartisan legislation on Tuesday to block a future single servicer repayment amendment.
“As the nation’s student loan debt continues to grow, we need to enact measures that will ensure students have all the resources available to them so they can repay their loans and get good customer service. Moving to a single federal student loan servicer would not accomplish this goal because it eliminates performance-based competition that incentivizes improved service for students,” Sen. Lankford (R-OK) said.
The legislation would prohibit the option of a single federal student loan service and promote competition by requiring the Department of Education to distribute loans to servicers based on their performance and borrowers’ satisfaction.
“Maintaining choice and competition amongst student loan servicers is the best way to ensure they will continue improving services for student borrowers,” Blunt said.
As of now, it appears that the feedback has been acknowledged by DeVos and her team. In a statement following the bill’s announcement, DeVos revealed that she hired an expert to review other options to modernize student loan repayments.
“I hired Dr. Johnson for his extensive private sector expertise, his fresh perspective, and his innovative thinking. After just a few weeks on the job, Wayne has already identified potential ways to modernize FSA and to leverage new technology that will not only enhance the customer service experience for borrowers but will also protect taxpayers,” DeVos said.
Lawmakers seem encouraged by DeVos’s change in stance.
Michael Woeste, a spokesman for the House Committee on Education & the Workforce said in a statement to Red Alert Politics that the committee believes the Department of Education “made the right decision to cancel the single-servicer proposal.”
With new experts joining the evaluation team, the repayment process structure remains under review. Secretary DeVos did not give a date of when a new plan will be released, but said the changes will be in place by 2019.
While many are hopeful that the outcome will be a robust borrowing system functioning at a better rate than it is currently, others like Sen. Warren remain skeptical of what’s to come.
“It will be important to continue watching the department to evaluate whether its decisions are good for the millions of struggling federal student loan borrowers,” Warren said.