Why Did DeVos Just Scrap Plan to Reduce Student Loan Servicers From 9 to 1?

Betsy DeVos, the U.S. education secretary, waits to be introduced to speak at the White House.
Education Secretary Betsy DeVos waits to be introduced in at the White House in Washington, Wednesday, July 26, 2017. Pablo Martinez Monsivais/AP Photo
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Months after announcing plans to reduce the number of companies that service student loan repayment to reduce costs, Department of Education Secretary Betsy DeVos is shifting gears.

DeVos is dropping her widely criticized plan to reduce the number of companies with government contracts to service student loans from nine on one.

According to a POLITICO report, when hiring A. Wayne Johnson as the chief operating officer of Federal Student Aid, the department renewed its commitment to customer service. In the past, improved customer service meant centralized servicing. Moving forward, the plan is to focus on technology to improve borrower experience.

Specific details about how the technology will work have not been released because the new system is not yet complete. But so far, the plan is to store all student loan data in one portal so every borrower and servicer can access the information the same way no matter who is responsible for servicing the loan. The new system is expected to open in 2019.

The overall goal is create a more consistent experience for borrowers.

“To improve customer service, we will take the best ideas and capabilities available and put them to work for Americans with student loans,” Johnson said in statement released Tuesday. “When FSA customers transition to the new processing and servicing environment in 2019, they will find a customer support system that is as capable as any in the private sector. The result will be a significantly better experience for students — our customers — and meaningful benefits for the American taxpayer.”

The new system, which is called the FSA Next Generation Processing and Servicing Environment, will house all student loan information in one place and still allow multiple servicers.

“FSA expects these contemplated changes to the servicing and processing environment to provide the opportunity for additional companies to submit proposals for contracting with FSA,” the announcement said.

DeVos Is Right — Student Loan Servicing Does Need Fixing

When DeVos started the conversation about changing the way the federal government manages the more than 42 million borrowers responsible for repaying $1.3 trillion in student loan debt, she was right about one thing: The system was broken.

It was clear when you looked at the mountain of complaints borrowers made to the Consumer Financial Protection Bureau about missing out on the benefits of the Public Service Loan Forgiveness Program due to servicer mistakes and misinformation.

It was clear when borrowers filed a lawsuit against student loan servicer Navient for pushing them toward forbearance instead of income-based repayment plans.

Although there was a general agreement that student loan servicing needed improvement, DeVos’ initial plan to consolidate servicing struggled to gain support.

Elected officials and members of the loan-servicing industry fought back almost immediately.

They argued that reducing the number of companies who service loans would actually result in terrible service for borrowers, less oversight, limited consequences for poor management of student loans and a too-big-to-fail government contract for a single company, according to POLITICO.

While Democrats are still skeptical of how DeVos’ new plan will work, the departure from the single-servicer plan has bipartisan support — for now.

As the Department of Education builds the new portal, it will seek the advice of “various stakeholders and industry technology leaders,” POLITICO reported.

Desiree Stennett (@desi_stennett) is a staff writer at The Penny Hoarder.