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ICYMI: No Way Out of Default

Since Democrats put the Department of Education in charge of originating and overseeing every new higher education loan in the country, a growing number of borrowers have expressed frustration with a range of problems plaguing the Direct Loan Program, from poor customer service and breaches in personal security to an ineffective loan rehabilitation process that puts borrowers’ credit in jeopardy.

In an effort to learn more about these complaints and build on previous oversight efforts, several House and Senate Republicans recently sent a letter to the Government Accountability Office requesting a review of the department’s administration and debt collection processes in the Direct Loan Program.

An article in today’s edition of Inside Higher Ed explores the reported loan mismanagement issues that are having a harmful impact on borrowers:

The Education Department hoped to begin fixing the problems over the weekend, including rehabilitating borrowers in default who have successfully made payments on their loans. But the long delays have become a source of concern for many who work with student borrowers, who say the department has been promising a fix for months -- and in some cases years -- with no result.

“We’ve heard about problems with the switch to the server, problems with the contractor, but the problems drag on for months,” said Deanne Loonin, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, many of whose clients are in default on their loans. “I haven’t gotten a satisfactory answer.”

As well as problems with loan rehabilitation and issuing wage garnishment orders, which have been shut down across the board since the Education Department began using a new loan servicing system in the fall, student aid officials say they have heard of other, less-widespread problems, including delays in enrolling in the government's income-based repayment program or in consolidating loans, both of which can stick borrowers with bills for higher monthly payments than they need to make.

Those problems are a setback for the income-based repayment system, which President Obama and others have touted as a way to provide relief to student borrowers amid growing concern about student loan debt.

The servicing problems come amid expanding responsibility for the department over federal student loans. Since 2009, when the government began originating 100 percent of federally guaranteed loans thorough its direct lending program, third-party corporations have continued to oversee the loans after they are made. But the huge growth in direct lending over the past three years -- more of the dollars of outstanding student loans now fall under the direct loan program, rather than the former bank-based Federal Family Education Loan program -- means that more of the servicing problems now fall on loans the government owns.

The department rolled out a new servicing website for direct loans in October, part an overhaul of its debt management system. Almost immediately afterward, complaints began rolling in: delays for borrowers trying to access the website or make payments, problems assigning defaulted loans to collection agencies, and issues assigning borrowers to income-based repayment, among others. A data breach revealed personal information for 5,000 borrowers.

 Read more…

House Education and the Workforce Committee Republicans are interested in hearing from borrowers and institution officials who have experienced difficulties with the Direct Loan Program. To share your experience or concerns, click here.

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