Education Dept. Keeps Obama Plan to Streamline Loan System
The Education Department on Friday took up an Obama-era plan to streamline federal student loan servicing by moving to a new, single platform for managing the loans of 43 million borrowers.
The department had indicated it might jettison the previous administration’s initiative, which was intended to simplify a system that consumer advocates have complained is overly complex and rife with poor customer service.
Choosing a single vendor to manage the loans also carries risk, as that entity would construct the most visible online government portal since the Affordable Care Act program website, HealthCare.gov.
One of the three remaining bidders for the contract is Navient, which was sued this year by the Consumer Financial Protection Bureau and two state attorneys general. The lawsuits claim Navient, the nation’s largest student-loan servicer, made serious mistakes at nearly every step of the collections process, which illegally drove up loan repayment costs for millions of borrowers. Navient denied any wrongdoing and is fighting the lawsuits.
Many students rely on the Education Department, which administers $1.3 trillion in federal student loans, to finance their higher education. The work of servicing those loans — sending bills, collecting payments, guiding borrowers through their repayment options, and handling any problems that arise — is outsourced.
Nine vendors currently hold those contracts, which expire in 2019. The Obama administration announced last year that it would replace that patchwork approach with a new, single web portal through which all borrowers would obtain information on their loans. The contract to create the new system is expected to be one of the largest nonmilitary federal contracts.
Last month, Betsy DeVos, the education secretary, rescinded key parts of the contract’s bid solicitation documents. The move stripped away some consumer protections and suggested that the department might be reconsidering the project entirely.
But on Friday, Ms. DeVos made another set of changes to the contract solicitation and affirmed her commitment to the one-platform approach.
“Moving to a single servicer instead of nine servicers will create one platform with a single and consistent brand, improving the user’s experience,” Ms. DeVos wrote in a Wall Street Journal op-ed that outlined her changes to the project.
The biggest change that Ms. DeVos’s department made on Friday was to eliminate a requirement that the new system — to be devised by a single vendor — support back-end subcontractors. That provision had been created to ensure that the myriad vendors currently servicing federal student loans would be able to bid for a piece of the new system’s action.
Instead, the new vendor will now be allowed to service all federal student loans itself, if it chooses.
That possibility is of concern to some consumer advocates. The department “will be overly reliant on a single student loan company,” Rohit Chopra, a senior fellow at the Consumer Federation of America, said, adding, “The changes may increase profits for the industry, but may do little to tame the high levels of default in the program.”
The Education Department said it would be able to more effectively monitor a single servicer.
Other changes made Friday to the contract solicitation eliminate requirements that the Education Department cast as confusing, costly and unnecessary. The new loan website will no longer have to allow the user to view it in Spanish, and it will not have to include a prepayment calculator to help borrowers evaluate how making payments before they are due would reduce their loans’ cost.
In addition to Navient, two other bidders remain in the running for the lucrative contract: the Pennsylvania Higher Education Assistance Agency, which services loans under the names American Education Services and FedLoan Servicing; and two companies, Nelnet and Great Lakes Educational Loan Services, that submitted a joint proposal.
A spokesman for Great Lakes declined to comment on the Education Department’s changes, citing the open bidding process. Representatives of Navient, Nelnet and the P.H.E.A.A. did not respond to requests for comment.
The Education Department did not say when it plans to award the contract.