Department of Education Outsourcing Student Loan Servicing
The federal government via the Division of Education has been has been transferring huge tranches of federal student loans to new loan-servicing companies for some time now. It has plans to continue to do so via the end of 2012 and beyond.
As our federally-owned loan portfolio continues to grow, we are prepared to move towards the subsequent step in ensuring an efficient and effective multi-servicer, borrower-centric method to servicing. We will further expand our federal loan servicer team by means of contracts awarded under the HCERA/SAFRA Not-For-Profit (NFP) Servicer System solicitation. This solicitation offered NFP entities the opportunity to submit proposals individually or in teams for servicing borrower accounts on our behalf. No matter whether individual or team award, our customers will know and face 1 servicer. The Division will annually measure each servicer's performance within the areas of borrower satisfaction and default management and use the results to assign added volume when applicable.
I am left only to assume that not straight informing borrowers in advance that hundreds of billions of dollars in student debt will probably be transferred to private entities is an indispensable element of this new "borrower-centric" method. I also assume that not informing me inside a timely fashion on the transfer carries no penalty. I must say loudly that I was quite happy using the previous service provided by the Division of Education and found its staff to become knowledgeable, helpful, and responsive. Over the years I have had many inquiries and require for help, and each request was handled professionally. I have no doubt that the level of service provided previously will not be duplicated by the private entities paying lower wages and advantages, and providing no job security to its collection agents and staff.
The alter was pushed by many nonprofit student loan corporations and their trade groups, including the Education Finance Council, during the health care debate in 2009 and 2010. The rule modify was hidden away nicely as part of legislation passed concurrently with all the Affordable Care Act. As has been true often during Obama's tenure, an idea initial floated to enable typical sense reform, has been bastardized by moneyed interests. The motivation for the law was primarily to let the government to break from guaranteeing loans offered by means of banks and credit unions and to start lending straight for the public. The adjust produced sense, and it has saved the federal government from having to spend charges for the huge banks to originate and service the loans. It has also meant that the federal government will be forced into servicing a larger quantity of loans. Even so, the apparently influential nonprofit collection servicing business groups won a provision which guaranteed that its members will be granted the rights to service the loans.
As a consequence in the right hand helping although the left hand pummels, several borrowers have suffered problems during the transition. Numerous borrowers' payments have been adjusted upwards or downwards without having explanation. The vast majority of these identical borrowers have given that provided the new servicer using the requested details necessary to correct the issue, but have not found a resolution. In my case I was simply notified in an unprofessional and untimely manner, though I am certain that added problems will arise inside the future.
I have some initial inquiries for the Division of Education. For instance, how will loan forgiveness procedures be handled? Who will make decisions concerning public service loan forgiveness? How will borrowers' payments be tracked for purposes of forgiving loan balances once the loans grow to be eligible under the 25 or 20 year provisions? Are we to trust these private companies to keep accurate records and base decisions on government policies and interpret these policies accurately? What new collection rights, if any, will the servicers enjoy that the federal government did not? Will there be an oversight board setup to handle complaints from borrowers when these servicers ultimately engage in fraudulent behavior? Who will punish these entities if they commence to intimidate borrowers? At least six from the servicers that Uncle Sam has negotiated these no-bid contracts with have been involved in scandals inside the previous. How are we borrowers to have any confidence within this process?
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The reality on the matter is the fact that this type of government outsourcing never functions as planned. Just ask anyone who has run afoul of parking regulations in Chicago, or the folks who were lately renumerated for fraudulent fines and penalties paid to private operators of toll roads in California. This loan servicing outsourcing was a terrible idea and it will have terrible consequences. Unfortunately, it will probably be nearly impossible to unwind it.
It truly is a despairing situation because the President, I think, had no intention of placing student borrowers into a precarious situation. In attempts to streamline the process he simply traveled down the path of least resistance, likely believing that the servicers' nonprofit status would in some way shield borrowers in the type or predatory behavior that they had been subjected to by the huge banks and private collection companies. In return, he was able to carve out a adjust that removed billions in charges in the big banks because the government became a direct lender to students. As I create this, the President is traveling about the nation attempting to rally help for an extension of lower interest rates for student loan borrowers, and I think he intimately understands the harm which will be caused by failure. Even so, outsourcing nearly a trillion dollars in student loan debt to ill-trained, ill-informed, ill-motivated private entities was a poor decision, and 1 that may likely adversely affect borrowers for decades.
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