“Student loan servicing is a really complicated, often misunderstood element of higher education financing and the student loan process,” said Michelle Dimino, the education senior policy advisor at Third Way. “There are a lot of mismatches at play with servicing when it comes to what borrowers want and expect from their servicer—and what servicers are hired to do.”
Dr. Rajeev Darolia, a professor of public policy and associate professor of public policy and economics at the University of Kentucky, authored the report, which is titled “Getting it Right: Design Principles for Student Loan Servicing Reform.” The paper highlighted three ways servicing can improve, including clarifying the servicer's role and simplifying where as well as how borrowers get information. Such reforms, argues the report, could yield long-term benefits for borrowers and society at-large.
As servicers remain in the public eye with this extension, Dimino added that Darolia's paper could help people and policymakers make sense of the student loan apparatus.
“This report provides additional clarity on the servicer relationship and starts digging into the longer-term reforms for borrowers going forward,” she said. “It highlights critical design aspects, including how the financial incentives of contractors need to align with what borrowers want to see.”
Borrowers in default face some of the most punitive practices from servicers, practices that many advocates want to see changed. The default system can garnish borrowers’ wages, tax refunds, and some of their federal benefits while borrowers also pay high fees. Many people who have been more likely to struggle in the pandemic are more likely to be in default, noted Sarah Sattelmeyer, the project director for education, opportunity, and mobility in the higher education initiative at New America, an advocacy and research organization.
“For many families, the pandemic exacerbated financial insecurity that has been going on for decades—reflecting long-standing structural inequities and racism in health care, education, and wealth-building opportunities,” wrote Sattelmeyer in an email to Diverse. “And the pandemic itself has been unequal in that it has disproportionately negatively affected people of color, women, and low-income families. For these families, and for many others, the pause has been an important lifeline.”
