Federal Student Aid Announces Next Steps in Student Loan Servicing Overhaul

By Owen Daugherty, NASFAA Staff Reporter

The Office of Federal Student Aid (FSA) on Wednesday took the next step in its overhaul of the student loan servicing apparatus, posting a request for information as it seeks to implement a new loan servicing model that it says will better serve borrowers.

The notice said FSA will publish a procurement in the coming weeks to bring on board multiple servicers that will assist more than 35 million borrowers with federally-held student loans through repayment.

“The new procurement, tentatively titled the Unified Servicing and Data Solution (USDS), leverages the progress made and knowledge gained under previous loan servicing initiatives and related investments,” according to the notice. “This work, which falls under the umbrella of the Next Gen initiative, will improve FSA’s technical infrastructure and allow FSA to transition from the current loan servicing contracts into a more stable, long-term servicing environment.”

FSA Chief Operating Officer Richard Cordray noted the timeliness and significance of the efforts.

“We’ll create a model with multiple servicers that increases cybersecurity protections & prioritizes more support for borrowers at risk of delinquency and default,” Cordray wrote in a post on Twitter. “Our oversight will ensure servicers meet our expectations for high-quality service.”

FSA’s long-term strategy named Next Gen has been a focus of the office for years and is coming to fruition in the next year, with the notice stating that the new contracts with student loan servicers will go live in December 2023.

Notably, FSA made clear that it is not seeking to create a single platform for borrowers to make payments through. Rather, borrowers will visit their respective servicer’s website to make payments and will receive communications that are co-branded with FSA, helping borrowers better understand the connection between their loans and the Department of Education (ED), according to the notice. 

“This strategy allows FSA to avoid the cost and performance risks associated with purchasing and relying on a single servicing platform while achieving a variety of goals, including enabling more-straightforward account transfers, creating opportunities for enhanced oversight, and, eventually, providing borrowers with complete account management on,” the notice added.

While borrowers will still make payments through their loan servicer, they will be able to find all of their loan and account information on, accessed by using their FSA ID. Additionally, the FSA ID will be used as a single sign-in for each borrower to use on their servicers’ websites.

FSA said it plans to award multiple contracts to student loan servicers under USDS to manage both new and existing borrower accounts. These servicers will manage the platforms borrowers interact with, contact centers, and manual processing activities for all non-specialty loan servicing tasks.

The notice comes at a critical time for FSA and ED, as student loan payments for tens of millions of borrowers are expected to resume in May after a more than two-year hiatus amid the coronavirus pandemic. Additionally, turnover in the student loan servicer ranks further compounds the complex task of the resumption of payments, as roughly 10 million borrowers will have a different servicer when payments restart.

“Millions of borrowers are counting on FSA to create a loan servicing model that works,” Cordray added. “This task is one of incredible importance, and we will deliver.”


Publication Date: 2/24/2022

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