The government's new spending bill has protections for student-loan borrowers dealing with bad behavior by companies that manage their debt

College graduation
College graduation.Rattanakun Thonbun/EyeEm
  • The new government spending bill did not increase funding for the Federal Student Aid office.

  • But it did include language on holding student-loan companies accountable for misleading borrowers.

  • Biden's administration has previously expressed the need to strengthen enforcement over those companies.

The new government spending bill wants to ensure student-loan companies don't get away with bad behavior.

On Monday, the House appropriations committee released the text of its $1.7 trillion government spending bill for the upcoming fiscal year. The bipartisan package rejected President Joe Biden's request to increase funding for the Federal Student Aid (FSA) office to allow it to overhaul the federal student-loan servicing system.

Instead, the over 4,000 pages of text, which covered everything from social media censorship to healthcare, kept federal student aid steady at $2 billion. And, the bill does includes some provisions to protect student-loan borrowers.

It said that new borrowers' accounts will be allocated to servicers "on the basis of their past performance," and that the Education Department will "re-allocate accounts from servicers for recurring non-compliance with FSA guidelines, contractual requirements, and applicable laws, including for failure to sufficiently inform borrowers of available repayment options."

The bill also said that Federal Student Aid will "incentivize more support to borrowers at risk of delinquency or default," along with increasing transparency by publishing data on the performance of student-loan companies.

In February, FSA Director Richard Cordray unveiled a plan to revamp the student-loan repayment system for borrowers by creating a Unified Servicing and Data Solution (USDS), which he said will hold all servicers accountable for "high level of performance" and work to reduce delinquency and default. But given the lack of increased funding in the spending bill, its likely the implementation of that system will be delayed.

Borrowers have reported a number of issues with student-loan companies over the past year. For example, MOHELA — which manages all accounts under the Public Service Loan Forgiveness program — has been criticized for its role in a lawsuit that blocked student-loan forgiveness (the company denied any explicit involvement in the case). Some borrowers have also reported hours-long wait times with the company to just get a simple question on repayment answered.

Still, Cordray has previously expressed the importance of holding loan companies accountable for misleading borrowers. After three companies announced they would be ending their federal servicing contracts last year, he said that "some servicers have decided to exit the program rather than contend with these new realities" of strengthened accountability.

"We will work closely in partnership with our servicers to make sure we deliver quality service to everyone who faces the prospect of repaying their student loans," he said.

This package also comes as the fate of Biden's broad student-loan forgiveness plan remains highly uncertain. After announcing up to $20,000 in debt relief for federal borrowers at the end of August, a number of conservative-backed lawsuits arose seeking to block the plan. So far, two lawsuits have placed the plan on pause, and the Supreme Court will be hearing arguments to the cases on February 28.

But if the highest court ultimately rules Biden's student-debt relief plan is legal, a summary of the government spending package clarified that it provides "no new funding for the implementation of the Biden Administration's student loan forgiveness plan."

Read the original article on Business Insider