A better way to collect federal college debt

Susan Tompor
Susan Tompor

As you watch the creation of Joy Mangano’s Miracle Mop unfold in a delightful movie called “Joy,” you can only wonder one thing: Why did it take so long to come up with such an obvious idea for a useful cleaning product?

And, frankly, I’m wondering the same thing about why it’s taking so long for the government to come up with a simple way to clean up the messy process surrounding the collection of student debt.

The government – and all of us – may be able to learn something about determination and finding logical fixes from the movie, which comes out on DVD May 3.

We do have some hope, as the U.S. Department of Education is developing a new, streamlined payment process for federal student loans.

The user-friendly model, which could be out in a year or so, is to include:

▪ A single Web portal where borrowers with federal student loans can track the latest information about their loans, make payments and apply for benefits. One spot. No more fumbling around with figuring out the name of the servicer on your specific loans.

▪ One standard form of communication – eliminating the variety of ways that student loan servicers communicate how much you owe and other key information.

▪ A more uniform vision for how to educate borrowers about enrolling in various government programs that can help them reduce their monthly payments, such as “Pay as You Earn” repayment plans.

“We are seeking to create a single loan-servicing platform so that every borrower has a single point of entry to get information about their loans, make payments, change repayment plans, and seek information,” a U.S. Department of Education spokesperson said.

Existing servicing contracts expire in 2019. The Education Department is looking to award a new contract for the new federal student loan system by the end of 2016.

But clearly, this idea should be a clean sweep to try to address many complaints that student loan borrowers have had about servicers and the servicing process over the years.

One major issue: Many times, borrowers don’t even know about repayment options that exist with federal loans that would take into account the borrower’s income and offer a more manageable monthly payment.

In the past, some borrowers have had different student loan servicers for graduate school loans than for undergrad. Or borrowers can consolidate their loans and end up with different servicers. It adds up to a ton of confusion.

Right now, if a borrower is switched to another servicer, the borrower must go through another round of paperwork to make sure that automatic payments are made to the new servicer from his or her bank.

If someone is struggling to get out of debt, the last thing they want is a company to apply extra student loan payments to the lowest interest-rate loan instead of to the loan with the highest rate. If a payment is applied to the loan with the lowest rate, the debt on that high rate loan continues to build even faster.

Here’s another proposed no-brainer: A single telephone number and a single payment address for all student loan servicers operating under the Department of Education-brand.

Susan Tompor is the personal finance columnist for the Detroit Free Press.