By Kaitlin Mulhere
April 28, 2016
As he enters his final months in office, President Barack Obama pushes forward on efforts to reform student loan servicing and reduce loan defaults.
Mandel Ngan—AFP/Getty Images

The Department of Education and Consumer Financial Protection Bureau are pushing forward on efforts to improve federal student loan borrowers’ customer service and their ability to repay.

But while the agencies have a lengthy list of goals to achieve in President Obama’s final months in office, it’s unclear when exactly borrowers may see the results of the plans announced today.

The overall goal is stronger consumer rights and a loan marketplace that’s easier for students and parents to navigate, so borrowers understand their repayment options and have access to high-quality customer service. Both are worthwhile goals for what’s currently a confusing web of repayment plans, with cloudy rules for how the companies that manage loan payments can interact with borrowers.


Here’s what the changes mean for federal loan borrowers right now:

  • Continued push for more income-driven repayment enrollment. Nearly 5 million borrowers are already enrolled in these programs, and enrollment has more than tripled in the past few years. Still, one in four borrowers are in default or struggling to stay current on their loans, and one government study found 70% of borrowers in default could have qualified for an income plan that would have reduced their monthly bill. King said the department aims to enroll another 2 million borrowers within a year and has partnerships with more than 40 colleges and business groups to help meet that goal.
  • A simpler way to navigate all your potential repayment plan options. The Department of Education today launched a new landing page for borrowers to help them figure out which repayment plan is best for their personal situation based on five yes or no questions.
  • A lengthy list of “rights” to protect borrowers. One of the major complaints about the student loan servicing industry is that there aren’t any federal standards to ensure that borrowers are treated fairly. But today officials released a set of principles for servicers to follow. They range from broad, vague assurances such as access to “accurate and actionable information” to more specific guidelines, such as automatically applying any payment that exceeds the minimum due to the loan with the highest interest rate.

    And here’s what the changes could mean in the future:

    • A new process to give personalized payback information. The CFPB unveiled what it has dubbed the “Payback Playbook,” which would provide individualized repayment information on monthly bills, emails, and loan accounts. The playbook would show a limited number of plans each borrower is eligible for, how much borrowers would pay under each plan, and for how long. Currently, there’s nothing to require servicers—the middlemen that manage loans—to adopt the playbook. But with their contracts up for renewal, servicers’ roles and responsibilities are being redefined, King said. See the proposed playbook here and, if you’d like, give feedback (by June 12) on whether it’s helpful and easy to understand.
    • Improved student debt reporting on credit reports. Officials are working with the credit reporting industry to write guidelines to ensure that student debt is reported consistently across borrowers and that it accurately reflects their repayment activity. Officials said they’d continue to work on this in the coming months, but didn’t have a time frame for when changes might be implemented.
    • A centralized loan servicing system. Loan servicers are the link between borrowers and their lenders, sending out monthly bills and collecting and recording loan payments. Complaints about servicers’ inconsistent quality and lack of actual service have grown in the past few years, and borrowers have no choice in which servicer is randomly assigned their debt. Earlier this month, the Education Department announced plans to transition to a new, centralized system. Details are limited, but a one-stop portal for all borrowers to make payments and get information about their loans would be a major change in how borrowers manage their debt month-to-month. King said on a call Wednesday that the department hopes to make progress on the new contracts by the end of this year.

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