ED Announces Extension of Student Loan Servicing Contracts, New Performance Standards

By Hugh T. Ferguson, NASFAA Staff Reporter 

The Department of Education (ED) on Friday announced it would be using its authority to extend several federal student loan servicer contracts for an additional two-year period in order to better address servicing issues to better protect borrowers by holding servicers accountable for their performance.

ED in recent weeks has been ramping up more details concerning the impending end of the student loan moratorium, slated to expire Jan. 31, 2022, but has also had to contend with servicer exits and re-assigning borrowers to new accounts.

According to ED, six servicing companies — Great Lakes, HESC/Edfinancial, MOHELA, Navient, Nelnet, and OSLA Servicing — will be included in the contract extension through December of 2023, which would also include increased performance and accountability standards, as well as increased transparency to better protect borrowers.

The newly negotiated standards would enable Federal Student Aid (FSA) to measure loan servicers each quarter on a number of metrics and include their ability to meet established goals.

Specifically, FSA would collect data related to borrowers being able to reach customer service representatives by phone, how well a representative answered borrower questions in helping them navigate repayment options, the accuracy of servicers processing borrower requests, and the overall level of customer service provided to borrowers.

In order to promote better performance from servicers, FSA will also reduce the number of new student loan borrowers assigned in upcoming quarters to servicers that fail to meet new standards, while rewarding those that help borrowers at risk of falling behind on their payments.

These standards share some of the same guidance outlined by former Under Secretary Ted Mitchell, which in 2016 provided ways FSA should hold servicers more accountable for the information they give to borrowers and how they respond to questions and complaints.

Even with this extension, a significant portion of student loan borrowers will still need to be reassigned a servicer before the end of the repayment pause.

While Navient signed a contract extension, the department is currently reviewing a recently submitted request from Navient to transfer its contract to Maximus, a loan servicer for defaulted federal student loans.

Additionally, 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,” ED said.

In announcing this servicer contract extension, ED also said that the extensions and additional oversight metrics were constructed and negotiated in a manner that came at no additional cost to taxpayers.

“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.”

In the announcement ,ED also pledged to take additional steps to improve borrower experiences with the federal student loan repayment program.

“In addition to building on enhancements to FSA’s digital platform – including 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.”


Publication Date: 10/18/2021

Eileen E | 10/18/2021 12:23:16 PM

I hope the borrowers with FedLoan Servicing (PHEAA) and Granite State will go to a loan servicer that is not changing in 2023. It will be a nightmare if they get moved again. We already saw this back in 2010-2012. When loans were transferred to ASC, they could not handle it. All of the loans were transfer to the current loan servicers. Within five years, a borrower had three-four loan servicers. I can see how a borrower could get lost during this time.

Charles M | 10/18/2021 11:50:22 AM

Seems like this creates a bit more uncertainty around the Navient piece. ...they extended, but still aren't planning to continue servicing beyond January 2022??

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