DeVos Abandons Plan to Allow One Company to Service Federal Student Loans

But the department’s winner-take-all plan prompted a broad outcry from consumer advocates, lawmakers, and even the industry itself, which is accustomed to splitting up the government’s lucrative contracts for student loan collection among a number of entrenched vendors.

A bipartisan group of senators introduced legislation on Monday to block the Education Department from moving all federal student loans to a single company.

Roy Blunt, a Missouri Republican, said that legislative action was needed to “prevent any one student loan servicer from becoming so large it poses a risk to taxpayers.” He was joined by another Republican, James Lankford of Oklahoma, and two Democrats, Jeanne Shaheen of New Hampshire and Elizabeth Warren of Massachusetts.

“Maintaining choice and competition amongst student loan servicers is the best way to ensure they will continue improving services for student borrowers,” Mr. Blunt said in a statement. He called the department’s change of course “a step in the right direction.”

After canceling the contract solicitation, Ms. DeVos said that her department would still have a new system in place by 2019, when the existing servicing contracts expire, but she offered few specifics. A detailed plan, she said, will be developed under A. Wayne Johnson, the new leader of the agency’s Federal Student Aid office.

“There is a good deal of uncertainty about what the department will ultimately decide to do,” said Michael Tarkan, a senior analyst at Compass Point Research who studies student loans. “We were surprised to see them reverse course, but they had gotten a strong backlash.”

Mr. Johnson was appointed last month after the abrupt resignation of his predecessor, James Runcie, who was scheduled to stay through 2020. Mr. Runcie cut his term short after clashing with the Trump administration and Ms. DeVos.

Mr. Johnson, who now oversees the federal loans held by 42 million borrowers, was until recently the chief executive of a company that makes private student loans.

The new loan service system his office is developing will be “a customer support system that is as capable as any in the private sector,” he said in a statement. “We will take the best ideas and capabilities available and put them to work for Americans with student loans.”

Four vendors, all among the department’s current servicers, had remained in the running for the now-canceled contract: Navient,…

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