U.S. Secretary of Education Arne Duncan announced yesterday that four companies were awarded contracts to service a portion of the approximately $550 billion outstanding federal student loan portfolio held by the Department. The selected contractors will also service and consolidate loans originated by and sold to the Department in the future.
AES/PHEAA of Harrisburg, Pennsylvania; Great Lakes Education Loan Services, Inc., of Madison, Wisconsin; Nelnet, Inc., of Lincoln, Nebraska; and Sallie Mae Corporation of Reston, Virginia, were awarded contracts under the Title IV Student Loan Management/Servicing procurement.
"The award of these contracts is another step in the Department's efforts to ensure that all eligible students have access to federal student loans and that, in partnership with the private sector, schools and borrowers receive excellent service," Secretary Arne Duncan said.
As a result of the state of the credit markets and subsequent passage of the Ensuring Continued Access to Student Loans Act, the Department will be acquiring a large volume of federally guaranteed loans in the coming months.
Winning the servicing contracts became much more critical to student loan companies after President Barack Obama submitted his fiscal 2010 budget calling for the end of the Federal Family Education Loan Program by July 2010. The Department said yesterday that the award of these contracts provides it "with the capacity necessary to support anticipated increases in the number of loans owned by the Department and ensures borrowers receive the assistance they need to effectively manage their federal student loan obligations". Although the Department has not send whether it would need to add still more servicing capacity if the President's proposal passes, the contract competition was perceived as a step towards positioning itself to handle all loans.
"The President's proposal ensures the viability of the federal student loan programs while saving billions of dollars that can be used to assure the future availability of federal Pell Grants for our nation's neediest students," Secretary Duncan said.
Companies which made the cut for the first phase of the selection process but were not awarded the contract today are ACS Education Solutions, which currently services Direct Loans, and Wells Fargo. Smaller loan servicing companies were not able to bid on the servicing work because the Department limited eligibility to compete based on capacity and size.
The Department did not say how it plans to allocate the servicing business between the four companies. The new performance-based contracts are for five years with a possible extension up to ten years depending on results as measured by customer satisfaction and default aversion. Each servicer meeting performance standards will get a minimum $5 million contract, with potential to earn more and service up to 50 million student loan borrowers over the five-year period.
This year, the Department financed over 60 percent of the loans issued by private lenders through the authority granted the Secretary by Congress under the Ensuring Access to Student Loans Act. In addition, the number of loans originated under the Department's own Direct Loan Program has grown by 63 percent over the prior award year primarily as a result of schools choosing to switch to the Direct Loan Program.
By Darrill Anderson
Associate Director of Communications
Media Coverage
Education Department Names 4 Lenders to Service Student Loans (Chronicle of Higher Education)
SLM Wins Federal Job (Wall Street Journal)
US awards big student loan servicing contracts (Reuters)
With Larger Structural Changes Pending, U.S. Chooses 4 to Service Student Loans (Inside Higher Ed)
Posted 06/18/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.
