Last week, the U.S. Department of Education formally announced that it will select one company to collect student debt payments on its behalf.
Right now, there is $1.4 trillion in student loan debt spread across 44 million borrowers in the United States. Of that amount, the vast majority of student debt is comprised of federal student loans.
While Cal Poly’s graduates are among the lowest in total debt across America, students who finance their education still enter the workforce with an average debt of $22,000, according to a press release from Cal Poly.
During Barack Obama’s presidency, his administration worked to transfer student loans away from private banks and consolidate them within the government. However, there are still nine different private services that manage these loans.
On top of this, the Consumer Financial Protection Bureau said they have received millions of complaints from borrowers about these federal loan services.
Secretary of Education Betsy DeVos called the current system “chaotic” and blames the problems on an overly
“The federal student loan servicing solicitation we inherited was cumbersome and confusing—with shifting deadlines, changing requirements and de-facto regulations that at times contradicted themselves,” DeVos said in a press release.
To address this problem, DeVos said the Department of Education will offer an exclusive contract to one company. The contract will give them the rights to servicing billions in federal loans, eliminating the other companies’ involvement.
It is unclear when this change will take effect, but this adjustment could potentially save taxpayers up to $130 million during the next five years, according to the Department of Education.
While this change appears to benefit borrowers, Devos has also taken several steps to decrease protections for students.
In April, DeVos withdrew a series of policy memos issued by the Obama administration to strengthen consumer protections for student loan borrowers.
One of the memos withdrawn called for the creation of financial incentives for outreach to people at increased risk of defaulting on their loans. In addition, it established a standard level of service for all borrowers and a contract flexible enough to penalize service providers for poor service.
In addition, as it stands right now, if you work for the government or a nonprofit for 10 years, you can have your student loans forgiven. Under this new budget, that will disappear entirely in favor of an income-based repayment system.
On campus, the changes received a mixed reaction.
“It’s really important that students get the tools that they need,” business administration senior Charmaine Tam said. “In school, we are never taught how to work with finances. We need to give students the knowledge to work with, in many cases, that much debt.”
On the other hand, bioresource and agricultural engineering freshman Matthew Caviglia said keeping track of loans should be exclusively the student’s responsibility.
“It shouldn’t be the [Department of Education’s] job to be on top of the student loans — it should be the people who take them out,” Caviglia said.