Single Servicer Failure: What is Means For You

This administration seems like it’s getting good at “oops just kidding” policy proposals. The latest comes out of DeVos’s Education Department. I don’t know if you heard, but she’s nixing the idea to merge all student loan servicing to one company. Here’s some of my thoughts on the proposal’s failure and what it means for you.

Republicans and Democrats Teamed Up to Prevent the Monopoly of Student Loan Servicing

The bill that lead to the failure of Devos’s proposal was cosponsored by none other than Sen. Roy Blunt and Sen. Elizabeth Warren.

There was a ton of agreement from throughout the ideological spectrum that the risk of putting Navient, Nelnet, Great Lakes, or Fedloan Servicing in charge of every borrower’s repayment was a bad idea.

I agree because you would’ve seen even less of an incentive to provide good customer service. I think the Senators were mostly concerned with the idea of creating a too big to fail company that they’d have to rely on for student loan management.

Devos probably cared mostly about cutting the cost of the servicing contract to the minimum possible. My guess is that she favored Navient because they were ready to deliver the lowest cost proposal.

Payment Processing is Getting Centralized Though

So no single servicer but there will be a single payment portal by 2019. The idea behind this is that borrowers would have a single place to go that would allow them to make payments on their loans.

Obviously, if you’ve ever tried to make prepayments, you know the loan servicers are a nightmare. Getting the right amount credited to principal is tough sometimes. If you want to target specific loans and not just apply payments equally across the board, it can be a challenge.

Get Ready for a Lot of Chaos in Student Loan Payment Collection in a Couple Years

Clearly it shouldn’t be so hard to pay your loans. Hence, the Dept of Education wants to standardize the payment process. That makes sense in theory, but in practice I think they’re going to have a really hard time.

student loan calculator

Imagine if all the credit card companies in the country were told by the government that they needed to move all their payment operations to a single centralized collection body run by the government. Furthermore, they need to do it in less than 2 years.

The credit card companies will still be responsible for reporting, mailing statements, providing customer service, and guiding borrowers to the right repayment plan. One problem. They have no power over how the payments get applied or how they’re collected.

Student Loan Payment Processing is a Lot More Complicated than They Realize

I think Sec. Devos way underestimates how difficult it will be to get a useful federal website up and running on which to make payments.

What happens when inevitable bugs and errors happen? Who do borrowers contact when there will still be a bunch of different loan companies?

Clearly, there are a lot of things to think through here. While I’m hoping for an easier process for borrowers, I’m expecting a lot of chaos and marginally improved customer service.

If anything, keeping the 9 student loan servicers we presently have and having a single payment website will just diffuse responsibility even more in the industry.

Did Senators Kill the Single Servicer Because of Local Job Concerns?

I think there’s a bit of federal defense contractor type behavior going on here. I wonder if some of the Senators combined to stop the monopoly bill.

These loan servicing companies spread out to different parts of the country, like Nebraska, Delaware, Pennsylvania, and Wisconsin. I imagine that politicians would much rather have the current setup with a large dispersion of operations because it means more jobs for local districts.

It’s no secret that when Boeing or Lockheed want a defense bill to pass, they identify the pivotal votes and make sure that they assemble parts in multiple different congressional districts. Why would an education servicing contract be any different?

Stick to Your Plan, Whether There’s a Single Servicer or Nine

Regardless of what Sec. Devos does with student loan servicing, you shouldn’t let it affect your repayment strategy. You either need to go for loan forgiveness or refinance.

Yes it stinks to have your loans transferred all over the place, but if it happens, you just need to make sure everything is set up correctly and continue on with life.

Of course if you know you want to pay back your loans, then I suggest refinancing as soon as you feel comfortable making the monthly payments.

If You Want to Get Out of the Federal Servicing Mess (and it’s the Right Thing to Do), Then Refinance!

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