This past weekend, I attended the Consumer Rights Litigation Conference put on by the National Consumer Law Center (NCLC). The opening speech was by Deputy Treasury Secretary Sarah Bloom Raskin. It was a fabulous speech about my favorite topic – student loans. Understand that the NCLC conference caters to consumer advocates, so of course, the Deputy Secretary’s topic was a demonstration of how the government was assisting our clients.
But then comes the Huffington Post, blowing holes in the speech. Actually, the article wasn’t really attacking the speech or the speaker, rather it was demonstrating the idiocy of the Department of Education’s choice of how to improve servicing of Federal student loans. It did so through the current champion of real reform, Senator Warren. I was quoted at the end of the article about trying not to laugh at some of the points of the speech. The fact is, I really did have to stop myself because ED’s ideas are laughable and useless.
The Department of Education has created new incentives for Federal student loan servicers, in an effort to help curb mistreatment, misrepresentations, and other bad things. With ED’s new system, servicers receive a bonus for each borrower they keep in active repayment, a smaller bonus for stopping default through deferment or forbearance, and no bonus if the borrower defaults. When the Deputy Secretary stated this in her speech, laughter was not my reaction. No, my reaction was more of incredulity. I hope you as the reader feel the same.
Can someone explain this to me? If I understand this correctly, we (and I mean taxpayers) are giving bonuses to companies for doing their job? Um, how bout the bonus be we let the servicer keep their contract?!
Do you give a bonus to your dentist when he fills a cavity correctly? No.
Do you give a bonus to your accountant when she files your taxes correctly? No.
Do you give a bonus to the bus driver when he drops your child off at the correct place? No.
Do you give a bonus to the garbage man when he picks up your trash and gets it all in the truck without dropping any? No.
Do you give a bonus to your mailman when he gets all your mail in your mailbox? No.
Do you give a bonus to your plumber for fixing your toilet correctly? No. (Though you might tip due to appreciation for doing the work quickly or cleanly.)
Do you give a bonus to your mechanic when he remembers to tighten all the lug nuts on your tire? No.
Does a football player receive a bonus every time he catches the ball? No – its his job!! Of course his performance dictates his salary and signing bonus upon renegotiating his contract. That is exactly how it should be for Federal student loan servicers.
Do we typically give a bonus to anyone for doing their normal, every-day job? No! We give bonuses for going above and beyond. And if the service is sub-par, we take our business elsewhere. Note that borrowers have little control over what company becomes their Federal student loan service. I bet giving a choice would change the way servicers perform.
So when do we typically create incentives like what we see with ED and its servicers? The best example I can think of is with potty training. Yes, we’re supposed to use the potty, but toddlers are just learning this. We create a token reward system to allow them to learn, to create the connection that going potty is good. After a year of going potty correctly, the reward system is gone. Does anyone reward their 5 year old, 10 year old, 20 year old for going potty correctly? No! Yet that is exactly what ED is doing. Most of these servicers have been in the business for decades, but ED wants to treat them like toddlers, just learning for the first time how to keep folks in active repayment. Honestly, if they can’t figure it out by now, fire them!
Fixing Servicing Problems
While the Deputy Secretary explained that the administration has attempted to fix problems, let me point the finger at the problem – ED. Whatever the administration suggests, and whomever it is that makes a suggestion, it is my belief that ED is acting on its own for whatever purposes. The reason I was holding back laughter during the speech was about one single point; that Navient’s servicing contract was not only renewed, but also increased! This, after data from both the CFPB (Consumer Finance Protection Bureau) about complaints, and an investigation by the Department of Justice and the FDIC that led to a nearly $100 million dollar settlement for alleged abuses against our military personal. I’m dumbfounded. And lets not forget that NCLC filed a FOIA (Freedom of Information Act) suit against ED for it’s failure to release a copy of the Private Collection Agency manual; the guide ED provides to its debt collectors explaining the law, regulations, and general guidance on how to properly collect defaulted Federal student loans held by ED. What exactly is ED hiding?
I appreciate Deputy Secretary Raskin’s remarks at NCLC’s Consumer Rights Litigation Conference. It was more than obvious that she cares about the plight of consumers, most especially the disappearing middle class. And, it was evident that she and the Treasury Department will enforce and do whatever it can to cut down on the poor servicing and debt collection by ED’s contractors. The real question, and the only question at this point: When will ED start enforcing negative consequences for servicers and debt collectors failing to do their job?