Progressive senators complain about lack of transparency in new Biden-Harris central system for servicing student loans

Vice President Kamala Harris, now the presumptive Democratic nominee following President Joe Biden's withdrawal from the 2024 race, must shoulder the blame for the administration's shortcomings just as much as she seeks credit for its accomplishments.

That means Harris should be held accountable by progressive leftist senators over an apparent problem with the Education Department's overhaul of the Federal Student Aid system, according to the Washington Examiner.

That new system, per the senators, protects student loan servicers with a measure of anonymity that makes it more difficult for borrowers and federal watchdogs to hold them liable for mistakes and poor servicing.

New student loan servicing system "lacks transparency"

The Hill reported on Monday that a group of progressive leftist senators -- Sens. Elizabeth Warren (D-MA), Ron Wyden (D-OR), Chris Van Hollen (D-MD), and Bernie Sanders (I-VT) -- sent a letter to Education Sec. Miguel Cardona that outlined their complaints over a lack of transparency in the newly created Unified Servicing and Data Solution (USDS) system for federal student loans.

"While we applaud the Biden Administration’s efforts to modernize and improve student loan servicing, a preliminary review of publicly available information on this transition suggests that this new system lacks transparency," the senators wrote.

"As a result, it will be difficult for borrowers and the federal government to hold servicers and contractors accountable, including the Business Process Operations (BPO) vendors that support account servicers," they continued.

A problem known as "white labeling" that reduces accountability

At issue here is what the senators described as "white labeling," or labeling all loans from various servicers under a "single FSA brand," which they lamented "interferes with regulators and individual borrowers’ ability to hold these companies accountable for servicing failures."

"When contracted companies perform low-quality services, because their actions are labeled as those of government agencies, their responsibility is obfuscated and blame is deflected to the agency," which makes it more difficult to impose any real accountability, even for regulatory entities like the federal Consumer Financial Protection Bureau.

The senators are now demanding information on the companies contracted to service student loans and what borrowers could do about filing complaints, among other things.

The "co-branding or single-branding loan servicers with FSA and allowing BPO vendors to operate in silence without being identified as individual companies threatens to create confusion for borrowers and could lead to a lack of oversight and accountability for servicers’ errors," they insisted. "FSA must incorporate strong transparency features that enable borrowers to identify the servicer responsible for their loan and hold that entity accountable."

Department defends intent behind creation of USDS system

The Examiner reported that an Education Department spokesperson confirmed that "We have received the letter and will respond directly to the signers."

It was further observed that the reason for the creation of the centralized Unified Servicing and Data Solution system was because there are six separate loan servicers that previously all operated their own proprietary platforms that, in the department's view, caused confusion for borrowers.

According to a USDS Fact Sheet, "This disjointed repayment experience can be less than ideal for borrowers. Borrowers must figure out who their servicer is and manage their account on their servicer’s website, while other important information and tools that help borrowers understand their rights, responsibilities, and eligibility for various repayment benefits are accessed on StudentAid.gov."

Thus, the creation of the USDS to "manage the platforms, contact centers, and manual processing activities for all nonspecialty loan servicing tasks," which aims to "provide a single sign-on experience for customers" and ultimately "improve the process for borrowers by moving full account management, branding, and repayment from the USDS servicers’ websites to StudentAid.gov."