The Washington Post last week revealed a draft of the Education Department’s proposed budget, which it described as a “near final version of the bill.” The proposal, now confirmed, includes $10.6 billion in cuts to federal education spending, including $3.1 billion for teacher trainer, class-size reduction, and after-school programs for students.
It’s not all cuts, though. Plans include $500 million to invest in charter schools, $250 million in voucher program expansion funding, and $1 billion to “push public schools to adopt choice-friendly policies.”
Just one day after the Post’s report, additional details emerged to complete the bleak picture of the Trump administration’s plans. On Friday, the Education Department outlined plans to contract a single student-loan servicer to collect on its behalf. The announcement also hinted that the contract will go to one of three companies: GreatNet, the Pennsylvania Higher Education Assistance Agency (PHEAA), or Navient.
In a prepared statement, Education Secretary Betsy DeVos defended the change, stating that “the federal student loan servicing solicitation we inherited was cumbersome and confusing... Internal and external stakeholders both agreed it was destined for a massive and unsustainable budget overrun.”
DeVos’s pursuit of efficiency has already sparked concerns that the contracted company will inherit too much wealth, making it “too big to fail” and giving the servicer too much power to dictate policy.
The department’s desire to streamline its operations also ignores a critical history lesson: the use of subcontractors to service student loans (there are currently nine subcontractors) was a direct result of the government’s experience with a single servicer before that. Take it from a former education under secretary, who told this to the Post.
In a nutshell, ACS Education Services was once the sole company charged with managing the government’s education loan portfolio, a role that critics of the company said led to widespread failures in customer service and loan consolidations. Robert Shireman, a former deputy undersecretary of education under Obama, recalls the department being frustrated by the amount of power ACS held as the only servicer.
“We felt we had little leverage because the whole system was operated by them, and they knew it would be such a huge endeavor to change that, so they didn’t have to be responsive,” said Shireman, now a senior fellow at the Century Foundation, a progressive think tank. “There was a move to add at least a couple servicers so you’d have competition and the department wouldn’t be stuck in that situation again.”
It’s not hard to imagine that another loan servicer would fall directly in line with this behavior. Navient has already faced criticism from the left for defrauding students by systematically misguiding borrowers on repayment options, targeting students likely to default, and ignoring payment directions from borrowers.
The other companies involved in the bid, PHEAA and Great Net, have come under less scrutiny – perhaps more a testament to Navient’s infamy than their own clean records. PHEAA was the subject of a 2006 lawsuit brought by Jon H. Oberg, a former education department employee-turned-whistleblower, who accused the company of manipulating a legal loophole for millions in government dollars. PHEAA, in turn, lost a lengthy appeal process that argued for the lender’s status as an arm of the state, which would insulate it from charges of fraud.
Nelnet, which paired with Great Lakes Educational Loan Services to form GreatNet, was also implicated in the Oberg lawsuit. The company eventually paid $55 million to settle the suit, which revealed that the company accepted $278 million in government overpayment.
The plans to shift to a simplified student loan servicing deal is not entirely original to DeVos, however. The Obama administration penned plans to create a single user portal for accessing loan information and set new requirements to ensure transparency and communication between borrowers and the loan servicers.
The previous administration’s attempts to improve accountability and services for students have already been rescinded by DeVos in a move that sparked an outcry from 21 state attorneys general. In a letter to the Education Department, they argued that the “decision to roll back essential protections imperils millions of student-loan borrowers and families.”
In an interview with The New York Times, Rohit Chopra, former assistant director of the Consumer Financial Protection Bureau, was more direct: “The changes may increase profits for the industry, but will do little to tame the high levels of default in the program."
While passing the budget remains a serious challenge for the administration – especially in light of some minor accounting errors – the plan to empower loan servicers has so far met little opposition. With basic consumer protections removed, the winners and losers from the Education Department’s move to a single loan servicer have already been decided.
And it’s clear, no matter which company wins, the students lose.
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