U.S. Department of Education Secretary Betsy DeVos recently announced her department’s move to choose one private company as servicer for all federal student loans, which currently stand at $1.4 trillion.
For Ms. Devos, the move results in $130 million of savings for taxpayers while keeping in place the federal loans’ borrower protections and ensuring superior customer service. Some student loan advocates think otherwise as they are concerned about monopoly and worsening customer service.
What the Government Plans, Exactly
There are currently nine student loan servicers, all of them private companies: Navient, Cornerstone, HESC/Financial, Granite State, MOHELA, Nelnet, Inc. FedLoan Servicing, Great Lakes Educational Loan Services, Inc., and OSLA Servicing.
Of the $1.4 trillion in outstanding student loans, more than a trillion of that are issued by the ED. If you hold multiple federal student loans, it’s possible that several companies are servicing your loans. These servicers handle payments, provide customer service and enroll a borrower in a repayment plan, among other things.
Under an amendment to the selection process for student loan servicers dated May 19, the number of loan servicers will be cut down to one. According to USAToday, Navient, FedLoan Servicing, and Great Lakes and Nelnet as a joint bidder will bid for the sole servicing contract.
So Why Are Consumer Groups Concerned?
Handing the servicing contract to one company does not bode well for the future of student loan servicing per consumer advocates.
A group of student loan borrowers, American Student Assistance is concerned that “… this model will create a monopoly with no competitive incentives to innovate or provide high-quality service”.
Ms. DeVos maintains, “The amended solicitation improves government oversight by simplifying the contracting structure and ensuring all vendors adhere to the same rules.” The goal is for an increased oversight by the Federal Student Aid Office (FSA) because it will just monitor one loan servicer.
Yet another group called Consumer Federation of America warns of the government being too reliant on this one servicer. According to Rohit Chopra, a senior fellow of the organization, “The changes may increase profits for the industry, but may do little to tame the high levels of default in the program.”
As Natalia Abrams of Student Debt Crisis puts it, awarding the loan servicing contract to just one company is effectively creating a trillion-dollar bank.
Should You Be Concerned?
There’s no definite timeline yet as to when the loan servicer chosen after the bidding process will take over servicing federal student loans. What’s definite is that the winning loan servicer is expected to set up a new single unified platform with an upgraded payment application and a consistent and accurate customer service.
Your loans with the government will remain the same. What will change is only one company will handle your payments and customer service. If you think about it, it would make monitoring all your student loan status much easier.
But it remains to be seen whether a single loan servicer for all federal student loans will actually result in a better customer service for student loan borrowers.