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July 20, 2016

U.S. Education Department announced that student loan companies such as Navient Corp, a former division of Sallie Mae, now must follow customer service mandates. (Paul Morigi/AP) 

With millions of college students struggling to pay back their student loans, federal officials are creating new protections for borrowers. The U.S. Education Department announced Tuesday that it is setting higher customer service standards for companies that collect student loans.

The Education Department hires private companies, such as Navient Corp., which was once part of Sallie Mae, to collect loans from millions of borrowers. They’ve been known to play hardball.

The government now says that loan companies must let students know their rights about income-based repayment plans, how to keep collection companies at bay and how to prevent defaults.

“Today’s policy directive is a big win for tens of millions of borrowers,” U.S. Secretary of Education John B. King Jr. said in a statement. “It will help ensure that student loan borrowers get the service they deserve.”

Federal student aid expert Barmak Nassirian, though, is skeptical and scoffs at the government guidelines.

"Servicing is a contractual arrangement between the Department of Education and the particular servicers,” Nassirian said. “Simply lecturing them is not enough."

A new report from the White House finds for-profit college students with the smallest loan burdens are most likely to default on the their loans.

Nassirian worries the government’s new standards won't help those students.

"Improving the service quality doesn't really address the plight of those who didn't get value out of the original act of borrowing," Nassirian said.

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