Thursday, December 17, 2015
Congress looks to curb 4 major student loan servicers
By Amy R. Connolly
Dec. 17, 2015 at 2:15 PM
WASHINGTON -- Federal student loan servicers will face performance-based scrutiny to provide borrowers with a higher quality of service under the omnibus spending bill, a move that could be a big win for nonprofit companies that manage education debt payments for the government.
Lawmakers are requiring the Department of Education to dump the formula that gives preference to four major servicers -- Navient, Nelnet, Great Lakes and American Education Services -- and instead to divvy up accounts "on the basis of their performance compared to all loan servicers utilizing established common metrics, and on the basis of the capacity of each servicer to process new and existing accounts."
That could shift business to nonprofit servicers that include Missouri Higher Education Loan Authority and Oklahoma Student Loan Authority.
"This provision is a win for student loan borrowers, ensuring that they receive effective, personalized loan servicing that guides them through their repayment period successfully, and for taxpayers, who deserve a system that maximizes existing and proven resources," said Debra Chromy, president of Education Finance Council, a national trade group representing nonprofit and state-agency student loan servicers.
Currently, the four companies manage nearly 70 percent of the $1.2 trillion in outstanding federal student loans, even though there are 10 servicers contracted to manage the loans. The loans are divvied up based on how they score on two customer satisfaction surveys and three default prevention metrics.
In September, the Consumer Financial Protection Bureau found "widespread servicing failures" across the board by both private and federal student-loan servicers and urged new rules to protect borrowers. A report by the bureau found "a wide range of sloppy, patchwork practices that can create obstacles to repayment, raise costs, cause distress and contribute to driving struggling borrowers to default."
Ben Miller, senior director for postsecondary education at the Center for American Progress, said the changes could mean a loss for the four major companies.