Last week was full of announcements about student loans. The U.S. Department of Education (ED), along with the Consumer Financial Protection Bureau and the U.S. Department of Treasury, announced last week that it plans to take steps to improve consumer protections and enhance the student loan borrower experience. ED’s announcement focused on four areas: helping borrowers get accurate and actionable information, providing consistent service, requiring servicers to be accountable, and providing transparency. Many of the action items in ED’s fact sheet seem intuitive but have sadly been problems for borrowers, including getting payments applied in the manner that the borrowers direct; providing borrowers with a full and accurate payment history; and ensuring that borrowers are not harmed by a servicer’s delay, lost paperwork, or bad information.
This announcement builds on ED’s plan to overhaul the way it does student loan servicing and it is encouraging to see ED highlight the need for consumer protection standards in the servicing contracts. However, it is vital that ED make all of these changes in the light of day with input from consumers and student loan borrowers. While ED has promised transparency, it has not yet made it known how it will take feedback on its servicers’ new contracts.
It is also vitally important that any borrower rights ED recognizes are actually clear and enforceable by borrowers. As Americans for Financial Reform stated in its open letter to Secretary John King today, “[u]nlike other consumer credit areas such as credit cards and mortgages, federal student loans lack clearly defined and privately enforceable borrower protections. This glaring gap in borrower protection prevents student loan borrowers from receiving information and assistance and impedes effective oversight and accountability.”
As NCLC has noted for years (here, here, and here), the current system is failing too many borrowers. ED’s plan for reform has the potential to benefit many student loan borrowers, but only if it is done through a truly open and transparent process and results in servicing contracts that include strong, enforceable borrower protections.