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Ed Secretary Betsy DeVos Rolls Back Obama Protections for Student Loan Defaulters

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U.S. Education Secretary Betsy DeVos is withdrawing protections put in place by former President Barack Obama for students who have mismanaged or are defaulting on their college loans.

In a letter to Federal Student Aid (FSA) operating officer James Runcie, DeVos withdrew several policy memos, issued by former Obama education secretary John King, which concerned the servicing of student loans and how student loan debt is collected.

“Our mission in the student loan servicing procurement process is to provide high quality customer service to federal loan borrowers in a cost-efficient and effective manner,” DeVos wrote, adding:

Unfortunately, this process has been subjected to a myriad of moving deadlines, changing requirements and a lack of consistent objectives. We now find ourselves in a situation where we must promptly address not only these shortcomings but also any other issues that may impede our ability to ensure borrowers do not experience deficiencies in service. This must be done with precision, timeliness and transparency.

The Obama-era memoranda directed the FSA to shift its focus from collecting student debt to assisting student borrowers in debt management, even to the extent of allowing them to default on their loans. The former administration presented itself as a protector of students against mistreatment by student loan companies that were seeking to collect debts owed and were accused of abusing student borrowers to pad their own profits.

Bloomberg reports that DeVos’s move comes on the heels of congressional lobbying efforts by the student loan industry to delay or change the Obama-era loan servicing policies. When new student loan company contracts terminate in 2019, Navient Corp will be among three finalists for renewal. State attorneys general in Illinois and Washington, and the U.S. Consumer Financial Protection Bureau (CFPB) – which was created by the Obama administration under a proposal by now Sen. Elizabeth Warren (D-MA) – have sued Navient over allegations the company was abusive to student borrowers. Navient has denied the accusations.

“The Department of Education has decided it does not need to protect student loan borrowers,” Illinois Attorney General Lisa Madigan said in a statement about DeVos’s move.

According to the Bloomberg report, the government spends some $800 million to collect on about $1.1 trillion of debt. During the two Obama terms, approximately 8.7 million American students defaulted on their loans, “for a rate of one default roughly every 29 seconds.”

“The student loan servicing procurement affords us a significant opportunity to improve outcomes and experiences for federal student loan borrowers, as well as demonstrate sound fiscal stewardship of public dollars,” DeVos said in the letter. “ We must create a student loan servicing environment that provides the highest quality customer service and increases accountability and transparency for all borrowers, while also limiting the cost to taxpayers.”


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