You have /5 articles left.
Sign up for a free account or log in.

WASHINGTON -- The Obama administration announced Tuesday that it plans to create a centralized complaint system for federal student loan borrowers as well as a single Web site where they can manage their loan payments. 

In remarks at the Georgia Institute of Technology, President Obama discussed what White House officials have dubbed a Student Aid Bill of Rights that includes a series of executive actions aimed at helping the growing share of Americans who owe student loans held by the federal government. 

Obama directed the U.S. Department of Education to create a new online feedback system by next July that allows students and borrowers to file complaints about federal student loan lenders, servicers, collection agencies and colleges and universities. 

Under Secretary of Education Ted Mitchell told reporters Monday that students and borrowers would have the ability to track what is happening with the status of a complaint. He also said that the department would use aggregate data from the complaint system to judge the performance of its loan servicers, in addition to the current metrics it uses. 

The department will also study how it should collect and resolve complaints it receives about colleges and universities, such as poor educational quality or misleading claims. Department officials will explore ways to improve how the department refers "possible violations of laws and regulations to other enforcement," the White House said.

Some of the other executive actions are designed, officials said, to improve and standardize the customer service experience of federal student loan borrowers. 

For example, the Department of Education will establish a single Web site where all federal loan borrowers can access their account and payment information. Borrowers currently have to visit the Web site of whichever of the dozen federal loan servicers has been assigned to manage their account.

The department also plans to direct its contracted loan servicers to provide "enhanced disclosures" when their loans are transferred between servicers and to more aggressively reach out when borrowers fall behind in their payments or need help changing repayment plans. 

In addition, the department will instruct its loan servicers to apply "prepayments" -- money a borrower pays in excess of his or her monthly minimum -- to the loans with the highest interest rate, unless a borrower requests otherwise. 

The Treasury Department will also play a role in the efforts to boost loan servicing.

It plans to launch a two-year pilot program in which the federal government will directly collect the defaulted debt of a small number of loan borrowers. The Department of Education currently contracts with private collection companies to pursue borrowers who haven't made a payment on their federal loans in more than a year. 

The pilot program is aimed at gathering information to help improve the collections process for federal student loans. The administration is not considering replacing its contracted debt collection agencies with debt collection directly by the government in the program, according to Deputy Treasury Secretary Sarah Bloom Raskin.

"What we are looking to do is to put our toe in the water here to acclimate ourselves to see what is involved in student loan debt collection," Raskin told reporters Monday. 

Mitchell said that having that "experimental pool" of defaulted loans collected directly by the government would allow the administration to test out new ways to work with struggling borrowers. 

He said that the department's Office of Federal Student Aid, which oversees the direct loan program, "is a learning organization and sees this as an enormous opportunity."  

In addition, the Treasury Department is looking at ways to let borrowers provide multiyear authorization for the Internal Revenue Service to release the income information needed to apply for federal income-based repayment programs. Borrowers now have to fill out a form each year to receive such benefits. 

Beyond the executive actions to be announced Tuesday, the administration said it will convene an interagency task force to develop regulatory and legislative proposals to help struggling borrowers with both federal and private student loans. 

Mitchell said that possible changes to bankruptcy law are among the proposals the administration will explore. Current law makes student loans more difficult to discharge than most other types of consumer debt. 

The administration's efforts to improve the experience of federal student loan borrowers comes as it has received criticism from a coalition of Congressional Democrats, consumer groups, unions and student advocates. 

Those critics, many of whom supported the switch from bank-based to direct federal student lending in 2010, have said they're concerned that the Department of Education isn't administering the federal direct lending program -- which relies on a web of dozens of private contractors -- in a way that helps borrowers. 

Responding to that pressure earlier this month, the Education Department said that it would terminate its contracts with five debt collection agencies it said had provided misleading information to borrowers. 

James Kvaal, the deputy director of the White House’s Domestic Policy Council, said that the administration’s announcement of new actions Tuesday “demonstrates another reason why student loan reform was a good idea.”

The overhaul, he told reporters, put the administration “in a position where we are able to continually improve our management of the program to better serve borrowers as a result.”

Next Story

More from Financial Health