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Eric Fink and Roland Zullo co-author report recommending new federal student loan servicing structure

On June 25, as hundreds gather in Newark, Del. for major student loan lender Sallie Mae’s annual shareholder meeting, Elon Law Professor Eric Fink and Roland Zullo of the University of Michigan released promising new data on private companies’ ability to service federal student loans.

Eric Fink, associate professor of law, Elon University School of Law

The report, funded by DC-based labor rights organization Jobs With Justice and written by Eric Fink, Associate Professor of Law at Elon University and Roland Zullo, an Assistant Research Scientist at the University of Michigan’s Institute of Labor and Industrial Relations, suggests an alternative solution to the current model, whereby four private banks service and administer all of the U.S. Department of Education’s federal student loans.

Read a July 31, 2014 Reuters op-ed based on the research by Fink and Zullo here, titled, "To keep grads solvent, take the middleman out of student loans."

The proposal involves removing the servicing contract model entirely, and effectively insourcing the administration of federal student loans to another government agency more equipped to handle it, either the Department of the Treasury, the Internal Revenue Service, or the United States Postal Service. According to the research, the USPS is a particularly good fit for this role following a January 2014 proposal by their own Inspector General that called for expanding the USPS into non-banking financial services, including short-term credit opportunities for low-income borrowers, and otherwise assisting people who are underserved by existing financial institutions.

According to the report, “Evidence suggests that student borrowers have not been well-served by the current system. Sources have identified persistent problems with the performance of servicers, the extent and nature of which indicate serious structural shortcomings and conflicts of interests in the present contractual arrangement.” The authors go on to mention several suitable alternatives to administer the federal student loan program, finding, “An important consideration in establishing a public loan servicing unit is choosing an appropriate federal agency to assume this function. One option is to add this role to FSA’s existing responsibilities under the student loan program. Alternatively, this role can be assigned to a different federal agency, in the interest of transparency and efficiency. Under that second option, three possible candidates would be the Treasury Department, the Internal Revenue Service, and the U.S. Postal Service.”

The report comes on the heels of continued public pressure on the Department of Education to revise its current servicing contract language and reconsider the servicing model altogether. Jobs With Justice has lead efforts to rewrite the contract language to include additional oversight measures, as well as an ongoing petition drive (which has garnered nearly 60,000 signatures to date) asking Secretary Duncan to hold servicers accountable in light of recent investigations by the U.S. Department of Justice and the Federal Deposit Insurance Corporation (FDIC) that fined Sallie Mae and Navient (a former subsidiary of Sallie Mae that is now its own company) for overcharging active duty service members on their student loans.

“This report offers the data that affirms what we’ve been saying all along: the big banks that service federal student loans simply aren’t doing enough to help borrowers. These corporations have played an active role in furthering our country’s student debt crisis, and the Department of Education has completely fallen down on the job when it comes to providing oversight and enforcement of their contractors. Any serious solution to our country’s crippling student loan debt now has to consider the possibility of moving these jobs to a federal agency with the capacity and inclination to help manage this crisis.” said Chris Hicks, Campaign Organizer of Jobs With Justice’s Debt Free Future Campaign.

For copies of the report, please visit: https://www.elon.edu/docs/e-web/law/faculty/Fink_Zullo_Federal_Student_Loan_Servicing_report_06_25_2014.pdf. To contact the researchers or others involved with the Debt Free Future campaign, please contact Ori Korin: ori@jwj.org.

Philip Craft,
6/25/2014 11:45 AM