President Donald Trump's administration will soon offer an exclusive contract that will give one company the right to service billions of dollars of outstanding federal student loans now handled by four companies, officials said on Friday.The U.S. Education Department,
led by Trump pick Betsy DeVos, said the streamlining will save money and
increase efficiency. But critics said student borrowers could suffer because a
single company would be granted a monopoly, with no incentive to provide better
The Trump approach would
represent one more radical change for the financial aid system that former
President Barack Obama overhauled. Under Obama, a Democrat, much of the $1.3
trillion business of student lending was moved from banks and other companies
to the federal government.
Four companies still handle
servicing the loans. Navient Corp, which was spun off Sallie Mae in 2014, is
the largest. Its stock rose 23 cents to close at $13.94, after popping to a
session high of $14.14 shortly after the announcement. The others are Nelnet
Inc., Great Lakes Educational Loan Services, Inc, and FedLoan Servicing, also
called PHEAA. Nelnet's stock closed down 0.5 percent on Friday.
The Consumer Financial Protection
Bureau, a consumer financial watchdog agency, is fighting Navient in court over
allegations the company deceived borrowers about repayment options and their
In an op-ed piece published on
the Wall Street Journal website Friday afternoon, DeVos wrote the Obama
administration's servicing requirements created a "chaotic system"
that generated numerous consumer complaints and was not sustainable.
She added the single servicer
will establish a user platform and a standardized process for handling customer
But Natalia Abrams, executive
director of the advocacy group Student Debt Crisis, said Obama's plan to have
servicing companies compete for federal contracts based on customer-service
ratings would have been more effective.
"With zero competition, we
are concerned about a 'too big to fail' student loan company that has zero
incentive to work for students, borrowers, and their families," she said.
Trump is making good on
Republican campaign promises to get government out of the business of student
lending, and recently lifted limits on fees debt collectors can charge some
defaulted borrowers. The Washington Post has reported he will propose major
changes to loan repayment in his forthcoming budget, including eliminating a program
that erases student debt for public-sector workers after 10 years of payments.
"The changes will certainly
increase profits for the industry, but will do nothing to tame the high levels
of default in the program," said Rohit Chopra, senior fellow at the
Consumer Federation of America and former CFPB assistant director.
The CFPB says 1.2 million
student-loan borrowers have defaulted in the past year and 90 percent of the
highest-risk borrowers are not enrolled in affordable repayment plans, even
though student-loan companies are supposed to inform borrowers about them.
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