The U.S. Department of Education today announced stronger standards for performance, transparency, and accountability for its student loan servicers aimed at protecting borrowers. Six loan servicing companies – Great Lakes, HESC/Edfinancial, MOHELA, Navient, Nelnet, and OSLA Servicing – will be held to these higher standards starting early next year.
The new contract terms give the Department’s Federal Student Aid office (FSA) greater ability to monitor and address servicing issues as they arise; require compliance with federal, state, and local laws relating to loan servicing; and hold servicers accountable for their performance, including withholding new loans and associated revenue for poor performance. These changes will be critical as FSA works with student loan servicers to implement the Biden-Harris Administration’s commitment to reform student loan servicing and ensure a smooth transition for borrowers out of the student loan pause ending on Jan. 31, 2022.
“FSA is raising the bar for the level of service student loan borrowers will receive,” said FSA Chief Operating Officer Richard Cordray. “Our actions come at a critical time as we help borrowers prepare for loan payments to resume early next year. The great work done by our negotiating team here enables us to ensure that loan servicers meet the tougher standards or face consequences.”
The Consolidated Appropriations Act, 2021 gives FSA the authority to extend the contracts with the loan servicers for up to two more years. Great Lakes, HESC/EdFinancial, MOHELA, Nelnet, and OSLA signed agreements that extend their services to December 2023. Navient also signed a contract extension, although the Department is currently reviewing a recently submitted request from Navient to transfer its contract to Maximus.
These extensions were negotiated at no additional cost to taxpayers. The contracts for two current companies – FedLoan Servicing (PHEAA) and Granite State – were not extended; in recent months, these companies announced plans to stop servicing federal student loans, and FSA is in the process of transferring those loans to remaining servicers.
Increased Performance Standards to Better Serve Borrowers
FSA added new performance standards to the contract extensions, in addition to existing measures tied to servicers’ efforts to keep borrowers from falling behind on their payments. When these new contract terms take effect, federal loan servicers will be measured on four specific ways they interact with borrowers, as well as how effective they are at keeping borrowers from falling behind on their payments. Specifically, FSA will measure loan servicers each quarter on their ability to meet established goals related to:
- The percentage of borrowers who end a call before reaching a customer service representative by phone.
- How well customer service representatives answer borrower questions and help them navigate repayment options.
- Whether servicers process borrower requests accurately the first time. And,
- The overall level of customer service provided to borrowers.
To protect borrowers, FSA will reduce the number of new student loan borrowers assigned in the coming quarter to servicers that fail to meet these stronger performance standards. Servicers that consistently fail to meet these performance standards can be denied new loans. Additionally, servicers will be rewarded for helping borrowers avoid falling behind on their payments, especially at-risk borrowers like recent graduates and borrowers with previously defaulted loans. Student loan servicers will now have strong financial incentives to provide quality service to their customers.
When the new contract terms go into effect, FSA will also require servicers to maintain core call center hours, including Saturdays, to make customer service representatives more accessible for borrowers. Further, FSA is requiring loan servicers to increase the number of Spanish-speaking customer service representatives.
Increased Accountability to Protect Borrowers
FSA is increasing servicers’ accountability to consumers and government entities by requiring all six companies that signed a contract extension to comply with federal, state, and local laws governing loan servicing and to respond to complaints filed with those authorities in a timely manner. Additionally, the contract extensions expressly prohibit loan servicers from shielding themselves from lawsuits brought to hold the companies accountable in court for poor servicing practices.
Increased Transparency to FSA and the Public
The new contracts address long-standing deficiencies related to servicer transparency by requiring new reporting and greater access for FSA to servicers’ systems and borrower data. Under the new contract terms, FSA will require servicers to provide new, comprehensive reports that give FSA greater insight into borrowers’ experiences with loan servicers. The new reports will allow FSA, for the first time, to properly track why borrowers contact a loan servicer, how long it takes for servicers to process various applications (such as loan forgiveness, deferments, and income-driven repayment), which borrower applications are denied, and what complaints borrowers log directly with servicers. The new contract terms allow FSA to publicly release servicer performance data, beyond just the performance measures used to allocate new loans. Over time, FSA intends to release expanded call center metrics, average processing times, and other key performance metrics.
Plans to Reshape the Future of Student Loan Servicing
These extensions and new contract terms are only one element of the Biden-Harris Administration’s longer-term effort to improve federal student loan servicing. The changes reflected in the new contract terms will complement short-term changes being made to servicers’ requirements for borrowers’ transition back into repayment on Feb. 1, 2022.
Throughout the next year, FSA will take additional steps to implement a broader vision focused on ensuring borrowers have easy access to the clear, accurate, and timely information they need to manage their federal student loans. In addition to building on enhancements to FSA’s digital platform – including StudentAid.gov and the myStudentAid mobile app – the Department will work on a permanent contracting approach to cement greater stability, servicer transparency, accountability, and performance beyond the two-year period authorized by Congress.
The Department also will work to standardize borrower data, simplify the process to transfer borrowers from one servicer to another, and improve security and privacy across our systems. Most importantly, we will work to provide borrowers with a superior customer experience and a suite of tools to ensure they have the resources necessary to manage their student loans successfully.
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