Is there a monopoly on federal student loan management?

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jacques01
Posts: 42
Joined: Thu Oct 08, 2015 4:56 am UTC

Is there a monopoly on federal student loan management?

Postby jacques01 » Tue Jun 21, 2016 3:38 am UTC

I'm only aware of 3 major federal student loan managers who manage student debt for the federal government.

These are Navient, Sallie Mae, and mycampus loan.

Wikipedia reports that the U.S. has about $1.2 trillion dollars in student debt. That may be including all type of loans, including private.

Navient claims to manage $300 billion in student debt for the federal government. That means even counting private loans, Navient manages at least 25% of all student debt in the U.S., and it appears they are rather profitable.

From an outsider, it appears that the system is rigged. Why is there no competition from other financial companies to manage student loan debt? Why would Navient be awarded such a large contract by the government? Do these contracts ever go up for re-competition again? Yes, there is refinancing, but it loses the benefits of federal loans and usually requires a good salary (e.g. entry level programmer).

I am not an expert in this kind of business, but it doesn't appear to be rocket science. Nothing that Navient or these other providers are doing appears to be anything that others couldn't do. On the other hand, companies like Google bring actual value (I've used countless programming libraries and technologies developed by Googlers) and would be difficult to argue are easily replaceable. In fact, it appears these student loan managers are nothing more than glorified bill collectors.

Do these providers get bonuses for making sure loans stay current / get paid?

Do they get penalized if the default rate is too high for the loans they service? Which would be interesting, as it'd be the government who loses the money, since Navient didn't 'risk' any capital.

DanD
Posts: 237
Joined: Tue Oct 05, 2010 12:42 am UTC

Re: Is there a monopoly on federal student loan management?

Postby DanD » Mon Jun 27, 2016 9:25 pm UTC

Navient is Sallie Mae's loan servicing division, so Sallie Mae is out of the servicing business (they may have residual loans, not sure how that worked).

And they aren't a monopoly, though the list of servicers is limited.

https://studentloans.gov/myDirectLoan/a ... ion.action


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