The National Consumer Law Center had the honor yesterday of hearing U.S. Treasury Deputy Secretary Sarah Bloom Raskin speak about the critical importance of student loan servicing and collection. Specifically, Deputy Secretary Raskin stated: “From our experience in the mortgage market, we know the importance of servicers informing borrowers and guiding them through the process of identifying the best repayment options. Yet we also know that absent proper supervision, enforcement, and well-structured incentives, servicers can fall short of this responsibility. We can recall the problems in mortgage servicing, so when we hear of problems with student loan servicing and debt collection, we are unlikely to prematurely dismiss them.”
Deputy Secretary Raskin also said: “The structural incentives under which the servicers operate must be aligned with the interests of student loan borrowers and the public mission.”
Hear, hear. Deputy Secretary Raskin’s remarks are another sign that the federal government is waking up and taking seriously the issues we have raised for years about problems with student loan servicing, particularly in the federal student loan area where borrowers have a relatively long delinquency period and many options to help them avoid the draconian consequences of default.
The Department of Treasury, along with the Department of Education, Consumer Financial Protection Bureau, other federal and state regulators all have important roles and it is critical that the regulators coordinate as much as possible. The Department of Treasury, for example, is the agency that administers the Treasury Offset program. We have advocated in testimony and other statements that among other actions, the Departments of Treasury and Education should coordinate to ensure not only that the offset process provides borrowers with due process, but also that borrowers are aware of rights such as disability discharges, that could terminate Social Security offsets.
Deputy Secretary Raskin cited recent improvements in the Department of Education servicing contracts to more effectively incentivize servicers to prevent defaults. We have written previously about these improvements. We agree that the renegotiated contracts include significant improvements, but there is still much work to do to strengthen these incentives AND to create borrower protections. Financial incentives are an important piece of the puzzle, but are not enough to protect borrowers. We need to know where borrowers can go to get relief when servicers fail to comply with their duties.
We were very encouraged by Deputy Secretary Raskin’s speech and her commitment to protecting consumers and urge the Department of Treasury, along with Department of Education, CFPB and other regulators to keep engaging with borrowers and their advocates.