Department of Education to Revise Student Loan Servicer Evaluations

NEW YORK (MainStreet) — The Department of Education (ED) is planning to revise the way it evaluates student loan servicers that manage payment of direct student loans.

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In a letter to Rep. John Kline, (R-Minn.) chair of the House Education and Workforce Committee, Thomas Skelly, ED's acting chief financial officer, outlined a plan to standardize performance benchmarks for the four main servicers and some smaller ones. The department is also re-examining how it pays its servicers. Compensation is reviewed when servicer contracts come up for renewal.

A joint House and Senate Conference Committee directed ED to ensure consistent application of new performance metrics and a timeline for their implementation. The Conference Committee wants to minimize the problem of moving multiple servicers to one set of metrics and reduce the impact of these changes on borrowers.

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ED is continuing to work with the Consumer Financial Protection on scrutinizing and regulating servicers. A CFPB source said the federal consumer watchdog would not comment on Department of Education's plans because of ED's contractual relationship with the servicers.

Revising servicer evaluation is one thing; giving borrowers a fair shake is something else. Servicer critics say that the Department isn't doing enough to oversee servicers who aren't cutting busted borrowers enough slack. James Runcie, chief operating officer of the federal student loan office, defended ED and the status quo in testimony before the Senate Health, Education, Labor and Pensions Committee last month.

Many borrowers would like to vote with their feet—and have the option of dumping their servicer. Some say that letting borrowers switch servicers might solve one set of problems while creating others.

"If borrowers were able to switch, you might introduce other influences beyond the quality of servicing and default aversion activities," said Mark Kantrowitz, publisher of FinAid.org, a Web-based provider of student loan intel.