Education Dept. Hits Reset on Process to Choose Student-Loan Servicer

The Education Department will cancel its current competition to select a company to service the billions of dollars in student loans it issues, and will start over, the department announced late Tuesday.

“The FSA Student Loan Program represents the equivalent of being the largest special-purpose consumer bank in the world,” said A. Wayne Johnson, chief operating officer of the Federal Student Aid office, in a news release announcing the move. “To improve customer service, we will take the best ideas and capabilities available and put them to work for Americans with student loans,” he continued. “The result will be a significantly better experience for students — our customers — and meaningful benefits for the American taxpayer.” Existing loan-servicing contracts are set to expire in 2019.

Tuesday’s announcement came just hours after a bipartisan group of U.S. senators introduced legislation that would have required the department to cancel the competition and barred it from choosing a single servicer to handle its student loans. The announcement from the department, however, does not mean that possibility is off the table.

The department’s move in May to choose a single servicer for student loans drew the ire of lawmakers, consumer advocates, and industry groups, who feared it would create a situation in which a servicer “too big to fail” would dominate the sector and benefit neither taxpayers nor borrowers.

“By starting afresh and pursuing a truly modern loan-servicing environment, we have a chance to turn what was a good plan into a great one,” said the education secretary, Betsy DeVos.

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