DeVos Rescinds Obama Student Loan Protections

Secretary of Education Betsy DeVos announced on Tuesday that the Department of Education would reverse a 2016 directive by the Obama Administration to establish stronger consumer protections as the Department invites companies to recompete for student loan servicer contracts. Here is a quick rundown of information for student leaders to know.

The headlines:

Betsy DeVos undoes Obama's student loan protections (Chicago Tribune)

Betsy DeVos reverses Obama-era directives aimed at protecting student loan borrowers (MarketWatch)

U.S. Alters Rules for Picking Student Loan Servicers (Inside Higher Ed)

Here's some context:

Federal student loan borrowers get their loans directly from the U.S. Department of Education (ED) but pay those loans back to private servicers who have contracts with ED to handle repayment. In 2010, roughly 1 in 7 borrowers were defaulting on their loans because, in large part, most servicers didn’t spend much time helping borrowers enroll in income-driven repayment plans.

In 2014, President Obama directed ED to, among several action items, renegotiate some existing contracts with servicers to ensure incentives were in place for servicers to help struggling borrowers better manage their debt. As a result, more borrowers learned about income-driven repayment plans and student loan defaults rates fell (still more work to do, as more than 1 million borrowers default each year).

Here's what's happening now:

All of the existing contracts expire in 2019. That means ED must run a process for companies to compete for the next round of these massive, lucrative contracts. In the last year of the Obama Administration, ED issued a directive to raise consumer protection standards and improve servicer accountability through the process.

Yesterday, Secretary of Education Betsy DeVos announced that ED would reverse that directive, and ED officials haven't really commented since the announcement. This leaves a great deal of uncertainty for everyone involved, particularly current and future borrowers (read: like 44 million Americans). As we wait for more information about what will happen, we’ve included some extra credit reading below (the actual ED memos involved).

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Want to get involved with advocacy efforts on this issue? Reach out to us at policy@campusleaders.org so we can connect you with experts.

Extra Credit:

  • Former Secretary King memo on performance of student loan servicers  

  • Obama Admin memo establishing student loan borrower protections in contract recompete process

  • Secretary DeVos’ memo reversing borrower protections 

What people are saying:

"We must create a student loan servicing environment that provides the highest-quality customer service and increases accountability and transparency for all borrowers, while also limiting the cost to taxpayers"

  • Secretary Betsy DeVos (in memo)

 

“Secretary DeVos’ first actions on student debt prove that her Department prioritizes the financial interest of debt collectors and servicers over the rights of borrowers.”

  • Maggie Thompson, Executive Director of Generation Progress

 

“...I don't see how FSA can provide the 'highest-quality customer service' by abandoning those commitments en masse.”

  • Justin Draeger, President & CEO of the National Association of Student Financial Aid Administrators

 

“If Secretary DeVos were serious about curing America’s trillion-dollar student loan crisis, she would strengthen, not rescind, these protections”

  • Randi Weingarten, President of the American Federation of Teachers

Are we missing an important perspective? Let us know!

 

Cover photo: Chicago Tribune (2017)

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