Advocacy in Action: NASFAA’s Loan Servicing Recommendations Incorporated into FSA Overhaul

By Hugh T. Ferguson, NASFAA Staff Reporter

In recent years the financial aid community — including NASFAA — has voiced concern about disruptions, inconsistencies, and lack of quality servicing on federal student loans. 

As such, NASFAA has convened task forces over the last several years to develop recommendations to improve the student loan repayment process for borrowers, and has worked to get those recommendations incorporated into federal reform. 

Recently, the Office of Federal Student Aid (FSA) announced updates to its loan servicing overhaul through the Next Generation Financial Services Environment (Next Gen), including several of NASFAA’s recommendations for improving the loan servicing process.

Borrowers first and foremost need an accessible “one-stop shop” where they can manage all of their student loans, which is why NASFAA has called for the development of a central loan portal where students can manage all of their loans — a recommendation included in FSA’s Next Gen loan servicing update. NASFAA called for this portal to be developed and managed by the Department of Education (ED) to allow students to easily access all their Direct Loan, Federal Family Education Loan (FFEL), and Perkins Loan portfolios in one central place.

Previous NASFAA task forces have also encouraged ED to develop a method to secure partnerships with private lenders so those loans could also be included in this database. This would allow borrowers to gain access to information about all of their loans, total indebtedness, and repayment status.

In order to provide the most clear, unambiguous information to borrowers, NASFAA has also requested that the only branding on communication to the student loan borrower be from ED. Currently, loan servicers co-brand their own logo with ED’s logo, on all correspondence with students. This leads to considerable confusion among borrowers about who is the actual holder and servicer of their loan.

Perhaps most troubling, branding inconsistencies can also lead to students being unsure about the legitimacy of the communication. From a broader perspective, a paradigm shift is essential to support borrower repayment success. By incorporating this recommendation into FSA’s Next Gen loan servicing updates, ED has taken ownership of the entire servicing process creating a better understanding that the ultimate responsibility for the servicing of federal loans is with ED, and not with the servicers.

Most consumer credit products — such as mortgages, credit cards, or car loans, for example — are governed by federal consumer laws that dictate servicing standards and processes. While federal student loans contain some borrower protections, there are fewer than almost every other consumer financial product. 

For example, borrowers do not and cannot select their loan servicer and have few avenues of recourse for dispute resolution. That’s why NASFAA has called for federal student loans and their servicing to contain an enumerated, standardized set of consumer protections. While FSA created a centralized complaint system under the Obama administration, in recent years little progress has been made, and NASFAA is redoubling its efforts to see these policies implemented.

NASFAA has also urged ED to develop a policies and procedures manual for servicing and provide an overview of standardized loan servicing practices through an online federal servicing policies and procedures (P&P) manual. A P&P manual would offer standardization in areas where there is a financial impact, or risk, for the borrower and assist servicers and schools with counseling their students and graduates in debt management and default prevention, resulting in consistent training, communication, and processes regardless of the servicer while still encouraging competition for contracts.

NASFAA is regularly engaged in advocacy, public policy, and research to support our mission: promoting programs that remove financial barriers and ensure student access to postsecondary education. Together, the tools of advocacy, policy, and research allow us to respond effectively to pending legislation, provide ideas for new legislative and policy proposals, and to promote policy objectives in a methodologically sound manner.

 

Publication Date: 8/10/2020


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