Obama administration: Reduce focus on student loan collections

By Amy R. Connolly

WASHINGTON, July 28 (UPI) -- The Obama administration wants federal student loan companies to move away from collections and shift their focus to helping borrowers manage education loan debts.

The proposed guidelines, which must be approved by the U.S. Department of Education's Federal Student Aid Office and written into contracts with loan servicers that include Navient and Nelnet, will also help some borrowers explore options to discharge student loan debt. The goal is to give the some 43 million borrowers, who owe an estimated $1.3 trillion in outstanding loans, better customer service and "fair treatment" as they repay their debt, the Education Department said.


"These servicing standards can help to increase accountability and improve the quality of information borrowers receive about their loans and the affordable repayment plans they are entitled to by law. We will continue working to stamp out illegal practices and look forward to the implementation of these critical protections that all student loan borrowers deserve." Consumer Financial Protection Bureau Director Rich Cordray said.

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The CFPB is working with the DOE to implement the rules.


Under the proposed directives, loan servicing companies will be required to do the following:

-- Inform delinquent borrowers about income-based repayment programs before demanding a payment.

-- Make efforts to contact borrowers who are at risk for default and explain the options.

-- Create a team of trained customer service representatives who immediately handle the needs of struggling borrowers.

-- Inform borrowers about possible loan cancellation options before discussing repayments.

Companies that do not follow the new rules could face penalties that include the loss of bonus funds or performance incentives and withholding compensation.

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