Student Loan Borrower Protections Withdrawn by New Education Secretary
Image: Pexels

Student Loan Borrower Protections Withdrawn by New Education Secretary

The action takes away accountability requirements for debt collectors and loan servicers

April 12, 2017

In a move condemned by consumer advocates, new Secretary of Education Betsy DeVos has withdrawn recently-passed federal guidelines meant to make the process of repaying student loans more accurate and transparent.

Consumer advocacy groups claim that DeVos's action means that debt collectors and loan servicers will not be subject to accountability rules, enabling them to start—or continue—taking advantage of borrowers.

The guidelines were released last summer by the Department of Education and the Consumer Financial Protection Bureau. They were intended to guide the federal government in making contracts with private companies to service federal student loans. The guidelines were designed to make sure that borrowers get the protection and service they need.

DeVos withdrew three pieces of the guidelines in a memo sent yesterday to the Federal Student Aid office. Those parts required the office to take servicers past actions into account when awarding contracts. Examples of such behavior included misleading or providing incorrect information to borrowers and engaging in abusive customer service.

The memo includes a vague claim that the loan processes under the Obama administration did not have "consistent objectives," but it does not specify examples.

Consumer groups claim that the withdrawal will take away key protections for student loan borrowers.

"It is utterly baffling that Secretary DeVos would undo guidance that asks servicers to do the basic things that anyone – literally anyone – would expect a loan servicer to do, like respond to questions and help people access repayment plans they have a legal right to use," said Consumers Union Policy Counsel Suzanne Martindale. "Today's move is very shortsighted and could lead to an even bleaker picture for student borrowers who are already struggling."

Americans for Financial Reform also condemned the action. The organization commented that it pushes the servicing industry in the direction of less accountability and worse customer service.

"In order to have accountability, there must be real consequences when servicers violate the law," stated Alexis Goldstein, senior policy analyst for the group. "Secretary's DeVos's actions today moves us away from true accountability, and creates dangers for the very student loan borrowers the Department is responsible for protecting."

Persis Yu, who directors the student loan Borrower Assistance Project at the National Consumer Law Center, agrees: it is "simply mind-boggling that the Department of Education would take away basic rights for borrowers. Today's action by Secretary DeVos could make it easier for the Department to hire servicers with a track record of harming borrowers."