Thursday, July 02, 2009

Incentives of new DL contract

by Andrew Gillen

Student Lending Analytics digs into the new DL servicing contract and has some concerns:
The incentives seem to be set up for servicers to provide any borrowers, at threat of defaulting, with the forbearance or deferment option. While that may be the appropriate decision in certain instances, it is not in all instances, as interest continues to accrue on the loan while the borrower gets a breather on payments. Meanwhile, the servicer receives a unit price of $2.07 almost equivalent to the grace or repayment status unit price of $2.11.
The new contract states that "There is authority in the DL for unlimited discretionary forbearances" (emphasis added)
has a taxpayer ever seen more frightening terms than "unlimited" and "discretionary" used in the same sentence.

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