In a speech he’s scheduled to give on Tuesday at the Georgia Institute of Technology, President Obama will announce a Student Aid Bill of Rights and sign a presidential memorandum directing federal agencies to take steps to help borrowers repay their debt.
The memorandum will require the Education Department to create a new complaint system in which borrowers can log grievances against lenders, loan servicers, collection agencies, and colleges. It will also establish a central portal where federal borrowers can view information about all of their loans, regardless of their servicer.
The memorandum will also require loan servicers and debt collectors that work under contract with the department to change how they operate. Servicers will have to provide “enhanced disclosures and stronger consumer protections” throughout the repayment process, and ensure that prepayments are first applied to loans with the highest interest rates. Debt collectors will need to ensure that their fees are reasonable and to help borrowers return their loans to good standing, among other things.
In addition, the president will direct his cabinet and advisers, along with the Consumer Financial Protection Bureau, to study whether consumer protections recently applied to mortgages and credit cards should be extended to student loans. The agencies will also be charged with recommending statutory and regulatory changes for all borrowers, “including possible changes to the treatment of loans in bankruptcy proceedings and when they were borrowed under fraudulent circumstances,” according to a fact sheet released on Monday.
The announcement comes just over a week after the department canceled its contracts with five of its debt collectors, citing inaccuracies in the information they were providing borrowers. The department has been under pressure from consumer groups, members of Congress, and its own inspector general to step up its oversight of the organizations, or bring debt collection in-house.
In a conference call with reporters late Monday, Sarah Bloom Raskin, deputy secretary of the U.S. Treasury, said her agency would conduct a pilot that would allow the Bureau of the Fiscal Service to work directly with some defaulted borrowers. However, she said the goal was not for the government to bring debt-collection in-house, but to “put our toe in the water – to acclimate ourselves to the particular challenges involved in collecting student debt.”
Ted Mitchell, under secretary of education, added that the agencies were “hoping to try out different techniques without disrupting the work of a contract or contractor.”
The nod to bankruptcy proceedings appeared to be a response to complaints from Democratic lawmakers and consumer advocates that the department had failed to exercise its authority to discharge student debt when colleges close or mislead their borrowers. They are urging the Education Department to forgive the debt of some borrowers who took out federal loans to attend campuses that were owned by Corinthian Colleges Inc. Mr. Mitchell has said the agency is considering it.
Student-loan servicers have also faced scrutiny from consumer advocates and federal regulators in recent years.
Asked if the changes in student-loan servicing had been prompted by any particular problems identified by the Obama administration, Ms. Raskin said no. She said federal officials just wanted to ensure that servicers were “engaged with borrowers” and were tailoring their advice to individual circumstances.
Kelly Field is a senior reporter covering federal higher-education policy. Contact her at kelly.field@chronicle.com. Or follow her on Twitter @kfieldCHE.
