Apr 15, 2017 06:01 AM EDT
Betsy DeVos, the Secretary of the Department of Education, has withdrawn a series of policy memos developed by the Obama administration. It was intended to strengthen consumer protections for student loan borrowers.
The news comes amidst the efforts of the Department of Education to issue new contracts to student loan servicing companies that collect payments on their behalf. The Washington Post reported that these companies are in charge of placing borrowers in inexpensive repayment plans and preventing them from defaulting on their loans.
However, consumer complaints have heightened due to poor communication, mismanagement of paperwork and delays in processing payments. The previous administration addressed this issue by including contract requirements to improve the quality of servicing but companies complained that the demands would be expensive and time-consuming.
On Tuesday, DeVos said in a letter sent to Federal Student Aid Chief Operating Officer James Runcie that the process has been subjected to numerous moving deadlines, changing requirements as well as a lack of consistent objectives. She noted that the department should quickly address the issues that may hinder their ability to make sure that borrowers do not experience deficiencies in service.
The Education Secretary undid three memos issued by former secretary John King and his undersecretary Ted Mitchell. One of the directives called on Runcie to make companies accountable for letting borrowers receive accurate, consistent and timely information about their debt.
The memo called for the development of financial incentives for targeted outreach to people who have a high risk of defaulting on their loans. This was supposed to be a baseline level of service for all borrowers and a contract that is flexible enough to penalize servicers for poor service.
It was noted that the Obama administration requested for routine audits of records, systems, complaints and a compliance-review process. Runcie's team was also directed to base compensation on response time to answering calls, completing applications for income-driven repayment plans, errors made during communications as well as the amount of time it takes to process payments.
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