Government

DeVos’s Rollback of Servicing Guidance Raises Fears Among Borrowers’ Advocates

April 13, 2017

Olivier Douliery-Pool, Getty Images
Education Secretary Betsy DeVos said this week that she was withdrawing three Obama-era memos focused on student-loan servicing and consumer protections. That move is the latest in a string of bad signs for borrowers, some advocacy groups say.

Education Secretary Betsy DeVos’s decision to withdraw Obama-era directives aimed at streamlining student-loan servicing for borrowers is adding to fears among some advocates about the erosion of student protections early in her tenure.

This week, Ms. DeVos rescinded three memos — issued last year by the former secretary of education John B. King and under secretary Ted Mitchell — that were part of an ambitious effort by former President Barack Obama’s Education Department to rethink how loan servicing looked and worked.

One senator complained that the Trump administration's latest move 'opens the door for corporations looking to make a quick buck on the backs of students.'

One problem with Ms. DeVos’s action, student advocates say, is that in halting a new vision for student-loan servicing, she did not offer a detailed alternative. That left some higher-education experts wondering how the department would hold the companies that service federal student loans accountable. Those companies came under intense scrutiny during the Obama administration.

The decision to withdraw the memos, coupled with the current outage of an IRS data-retrieval tool that makes it easier for borrowers to certify their eligibility for income-driven repayment plans, have raised alarms that the department is not focusing enough on borrowers’ interests.

"The urgency of getting the data-retrieval tool back online cannot be overstated," said Clare McCann, a senior policy analyst at New America, adding that the importance of having a long-term solution for the loan-servicing industry "is also critical to helping borrowers."

Details Unknown

Communication between borrowers and the companies that service their student loans can play a large part in helping people avoid defaults or stay certified for an income-based repayment plan. The memos that Ms. DeVos rolled back on Tuesday were meant to streamline that communication and improve customer service.

In a letter to James W. Runcie, chief operating officer of the department’s Office of Federal Student Aid, Ms. DeVos said she was withdrawing the guidance documents to "negate any impediment, ambiguity, or inconsistency" in her department’s approach to "cost-efficient and effective" loan servicing.

The Education Department did not respond to questions from The Chronicle about why the guidance was withdrawn, or what plans might take the place of the Obama administration’s overhaul.

Sen. Patty Murray, Democrat of Washington, admonished the decision and urged Ms. DeVos to "reverse course."

"The latest move by the Trump administration to roll back protections and long-overdue improvements to customer service for more than 40 million student-loan borrowers opens the door for corporations looking to make a quick buck on the backs of students," she said in an emailed statement.

Sen. Elizabeth Warren, Democrat of Massachusetts, was more blunt:

Ms. McCann, of New America, said it was troubling that Ms. DeVos did not issue new guidance to replace the Obama-era memos.

She called that action "a sort of desertion of the idea that servicers should be accountable for actually helping borrowers stay on track." The potential benefits of the new servicing structure had yet to be seen, she added, but withdrawing the documents that laid the groundwork for those changes removes the opportunity for such benefits to be realized.

The National Council of Higher Education Resources, a trade group that represents servicers, guaranty agencies, and other financial organizations, last week sent a letter to key members of Congress urging lawmakers to direct the department to "review the current student loan-servicing procurement to determine whether its approach needs to be changed or modified."

"At the core, the department has failed to answer how this new centralized system will provide better services to student and parent borrowers," the letter stated.

Pamela Shepherd, a spokeswoman for the council, said in a statement emailed to The Chronicle that the organization "supports federal efforts to strengthen the federal student-loan servicing system, including improving borrower communication."

The statement acknowledged that the council "has never been a huge fan of the current procurement’s concept to move to a single servicing platform system," but said that the group supported efforts to provide high-quality services, "as long as the federal government is willing to pay for them."

"But like everyone else," the statement continued, the council is waiting to see how the department’s Office of Federal Student Aid puts Secretary DeVos’s directive into effect.

Tool Still Down

The removal of the guidance documents issued by Mr. King and Mr. Mitchell was the latest sign of trouble for borrowers and their advocates, who are still grappling with the outage of the IRS data-retrieval tool. The online tool, which went offline abruptly in March after the government raised concerns about fraud, helps families fill out the financial-aid application form known as the Fafsa more easily. It also helps borrowers certify their earnings in order to participate in income-driven repayment plans. The outage raised the possibility that many borrowers could be kicked out of those plans.

In the past few years, the number of borrowers enrolled in some form of income-based repayment has ballooned to more than six million, accounting for $300 billion in debt. The rising enrollments were due, in part, to the efforts of the previous administration, advocacy groups, and colleges themselves to highlight the plans, said Robert Kelchen, an assistant professor of higher education at Seton Hall University.

The required yearly certification of income, however, can prove to be a challenge for borrowers who are enrolled in the plans. The department has previously acknowledged that thousands of borrowers are dropped from income-based plans after failing to meet the annual recertification deadlines. The outage of the data-retrieval tool could compound that problem.

Last month, a bipartisan group of lawmakers from the U.S. House and education committees sent a letter to Ms. DeVos, asking the Department of Education to assist students and their families who were affected by the outage. Protecting taxpayer data is important, they said; however, they expressed concern about those who would be without the data-retrieval tool for "weeks." The government said later that the tool would be offline until the fall.

There are still opportunities for the department to reach out to borrowers and students "to let them know how their process will be different" in the tool’s absence, said Diane Cheng, associate research director at the Institute for College Access and Success, an advocacy group. And it is important that people are aware of the scope of the outage, she said.

Taken together, the department’s early actions, including the withdrawal of the memos on loan servicing, its handling of the data-retrieval tool, and other issues, do not paint a promising picture for borrowers, said Ms. McCann, of New America.

"The actions that the administration has taken so far have been extremely sympathetic to industry," as opposed to the students and borrowers, she said. "That’s not to say there’s not time to do those things, but, to date, they haven’t done anything that I’ve seen."

Adam Harris is a breaking-news reporter. Follow him on Twitter @AdamHSays or email him at adam.harris@chronicle.com.