By Eliza Partika
Secretary of Education Betsy DeVos cancelled the Obama administration’s June 2016 memos for student loans, which included benefits for loan borrowers including simplification of the student loan process and better protection of borrowers, as well as federal oversight of loan servicing contractors. Student loan contracts are not currently managed by the federal government, but are managed by federal loan contractors and third-party contractors.
Prior to the Obama administration’s memorandums, these companies were rewarded for “cashing in” on the most student debt. During Obama’s time as President, however, this practice was replaced by a more transparent system which, “incentivized a good track record and sought to award contracts to companies with a history of helping borrowers.” according to the Policy Direction on Federal Student Loan Servicing. Obama’s plan required the loan collectors to spend less time on loan collection, to help borrowers find the best way for them to pay off their loans and put tougher regulations on the loan contractors to prevent them from misleading clients.
Instead of promoting cooperation with and transparency for student loan borrowers, DeVos cited her withdrawal memorandum as “limiting the cost to taxpayers,” as well as intending to “increase customer service and accountability.” Within the withdrawal, it was written that “a lack of consistent objectives” was the primary reason for revoking the previous administration’s memorandums.
Under DeVos’s new plan, the protections offered by Obama’s plan no longer exist. As a result, students may have more difficulty paying off student loans due to the high probability of illegal practices by current student loan contractors, including misplaced paperwork, misinformation given by the contractors and unexpected fees in addition to student loan payments.
8.7 million students defaulted on loans during the Obama administration, and many critics believe DeVos will increase the problem two-fold. In an interview with NBC, attorney and student loan expert Heather Jarvis said, “For years, the government was content to award contracts based on the collection success of servicers. But Obama became aware of the problems students and families face and decided we want you to do better.”
On the justification for withdrawal Jarvis said, “I don’t understand how it’s costly to taxpayers — it costs taxpayer money when borrowers default on loans and don’t pay their loans.”
DeVos did not offer a plan to replace the plan she has cut, meaning students could be facing misleading loan servicers, potentially leading to an increasingly inflated number of students unable to pay off student debt.