Every day I speak to someone who has student loan issues. More recently, I have people coming in asking what they can do once their IBR (Income Based Repayment) plan ends with the federal government. They are afraid of what will happen next. Borrowers now face a new dilemma. According to a recent article in USA Today, the President believes there are too many federal student loan servicers and he wants to move the servicing from nine companies to one. There is a concern from consumer advocates that this would create a monopoly. According to the Secretary of Education, the government needs to become less involved in the student loan business. It is her opinion the move will allow better monitoring and save tax payers $130 million in five years.
What Does This Mean For Borrowers?
The Department of Education is now taking bids from the existing servicers and the government will give all of their servicing work to one vendor. Four of the nine companies bid for the contract.
Does This Affect the Terms of Student Loans?
No, the interest rates and monthly payments will stay the same. The new servicer will have a new system (website and payment processing mechanism). Consumer advocates worry this winner will “wield significant influence on how student loan debtors repay, refinance, change payment schedules or see lower monthly payments.”
The Secretary of Education stated the streamlining process began under the Obama Administration who wanted to cut the servicers from nine to four companies. The Department of Education is the largest issuer of federal loans, but the servicing has been with these nine companies. Secretary DeVos believes having one company instead of nine or four will “provide a common and consistent experience for all customers.”
If you have federal student loans, be on the lookout for servicing information regarding them. All of the Bond & Botes offices offer a free consultation regarding problems you may have with finances including student loans. Please call us for help.
Heather Ellis Banks is an Associate Attorney at the Bond & Botes Law Offices in Knoxville, Tennessee. She holds a Bachelor of Science from the University of Tennessee Knoxville, and a Juris Doctorate from the University of Memphis, Cecil.C. Humphreys School of Law. She has been helping consumers to navigate through the bankruptcy process since 2005. Read her full bio here.