DeVos Walks Back Controversial Student Loan Contract

Education Secretary Betsy DeVos

Education Secretary Betsy DeVos Alex Brandon/AP

The department is turning its attention to providing a "truly modern loan servicing environment."

The Education Department on Tuesday abandoned plans for a controversial contract that would have allowed a single company to collect student loan payments.

Instead, the department plans to build a single system for student loan data that multiple loan servicers can plug into. 

The Next Generation Processing and Servicing Environment would allow more than 42 million loan recipients to access and manage their accounts all in one place. It would allow either single or multiple companies to service the loan.

The department expects separate acquisitions for database housing, system processing and customer account servicing. 

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“By starting afresh and pursuing a truly modern loan servicing environment, we have a chance to turn what was a good plan into a great one,” Education Secretary Betsy DeVos said in a statement.

DeVos previously proposed enlisting a single company to oversee all borrower accounts. She said delegating the process to one group would reduce costs and streamline a labyrinthine loan payment process while giving her agency more power to hold the company accountable.

Once awarded, the mammoth contract would give the winner complete control of the government’s more than $1 trillion loan portfolio. Both Republicans and Democrats feared this would create a monopoly in the market, leading to higher costs and worse services as competition among contractors evaporated.

On Monday, Sen. Roy Blunt, R-Mo., introduced bipartisan legislation to block the overhaul and maintain a competitive market. Sens. Elizabeth Warren, D-Mass., James Lankford, R-Okla., and Jeanne Shaheen, D-N.H., signed on as cosponsors.

Though DeVos announced the agency’s new plan the next day, the Education Department told Politico the platform proposal was in the works long before the Senate legislation.

“I'm glad the Education Department is changing course,” said Warren. “It will be important to continue watching the Department to evaluate whether its decisions are good for the millions of struggling federal student loan borrowers.”

The department wants the system running by 2019, which is when the current contracts for federal loan servicers expire. Newly minted Chief Operating Officer of Federal Student Aid A. Wayne Johnson will lead the platform’s development.

“The result will be a significantly better experience for students—our customers—and meaningful benefits for the American taxpayer,” Johnson said.