Education Dept. Plans to Reform Student Loan Repayment System Fall Through

student loan repayment options

Flickr user Gage Skidmore

12/19/2018 Nobody said that the government, federal student loans, student debt, and repayment plans were simple concepts. They interweave in often frustratingly complicated ways, and leave borrowers scratching their heads when it comes time to repay. However, this past year the Education Department had plans to reform the federal student loan repayment system and make it much simpler. Unfortunately, it was announced on Friday, December 14th that those proposed plans fell through.

The Original Plan: Reform Student Loan Repayment Options System

The proposed reform plan featured a new technology system that would simplify and streamline the federal student loan repayment process. This system would have had a new website, that detailed repayment options to student borrowers, and would have better allowed them to see and manage their accounts.

As it stands, the current repayment system is generally disliked on all sides, given its complication. Mentioning the universal pain point, Secretary of Education Betsy DeVos said, “Repaying a student loan should not be complicated and it should not be frustrating. You can pay your car loan on your phone and manage your mortgage on an app. A student loan should be just as easy to handle.”

With the new system, 35 million student borrowers would’ve enjoyed an updated and standardized process when it came to making and managing loan payments.

The Wrench in the Plan

So what went wrong? Although the federal government is the largest lender of student loans, they rely on outside servicers to help with the logistics of repayments. These 8 servicers are the ones who send out the bills and collect the repayments.

In 2019, those 8 outside contracts expire. This is when the Education Department planned to implement the overhaul. A fresh slate, of sorts. The Department proposed new contracts for the new system.

7 of the servicers, including Navient, were far from happy with the changes. In fact, they filed a lawsuit against the Education Department citing contracting errors and unfair last-minute changes.

The lawsuit threw a wrench in the overhaul plan by suddenly adding a tight deadline. In the end, the Education Department announced that they would not be moving forward with their proposed changes, and would instead rely on the old system for now.

What Happens Now?

For the foreseeable future, the current system will remain. Frustrating as that can be for student borrowers, there is some cause for hope. The Education Department still wants to implement the changes, and in fact will make some improvements over the course of the next year, but the promised overhaul may be stuck in the weeds for a few years until the contracts are agreed upon by both the outside servicers and the federal government.

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Allison Wignall

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