Policy Solutions for Student Loan Borrowers in Crisis: 12 Recommendations for Servicing

By Hugh T. Ferguson, NASFAA Managing Editor

In response to the ongoing issues stemming from the financial hardships imposed by the complicated nature of the current student loan system, NASFAA has developed comprehensive recommendations aimed at providing policy makers with targeted and tangible solutions to address the long documented, underlying flaws in the current servicing model and the Office of Federal Student Aid’s (FSA) structure and responsibilities.

In a white paper released this week aimed at addressing the underlying flaws in the student loan system, NASFAA put forward 12 recommendations for improvements that can be made to loan servicing.

“Over the last several years, federal student loan borrowers, government oversight offices, higher education associations, think tanks, and members of congress have voiced concerns about disruptions, inconsistencies, and lack of quality servicing in the federal student loan programs,” NASFAA writes. “Due to an apparent lack of transparency around data and processes, it has been difficult to fully grasp the extent to which servicing issues exist and to understand the disparate practices between various servicers.”

As part of this work, NASFAA formed a coalition with associations, organizations, and think tanks from the higher education policy, advocacy, and research community to help develop these recommendations.

The section of the paper delving into servicing provided four key frameworks with which policymakers should look to make improvements by ensuring servicing consistency for borrowers, making structural changes to the Office of Federal Student Aid (FSA), ensuring FSA collaborate with other entities, and reevaluating student loan servicing pricing.

Within each of those four frameworks, NASFAA put forth several recommendations: 

  • Require FSA to develop and implement a comprehensive manual of student loan servicing practices. Require adherence to the guidance by all student loan servicers by adding an amendment to the loan servicing contracts containing the contents of the manual.

  • FSA should immediately implement a single brand for all loan servicing operations and should use a single servicing system for all interactions with student loan borrowers.

  • FSA should consider requiring all federal loan servicers to process Public Service Loan Forgiveness.

  • FSA should identify best practices in student loan servicing and require their adoption by all servicers.

  • FSA’s chief operating officer should report directly to the secretary of education as part of an oversight board and collaborate with the undersecretary of education.

  • Amend the performance-based organization enabling language in the Higher Education Act to create a new role specific to student loan servicing.

  • The secretary of education must ensure FSA follows a structured process when developing its five-year strategic plan, as described in the performance-based organization enabling language, and that the strategic plan and individual performance plans include measurable loan servicing goals and objectives.

  • FSA and states should collaborate in their supervision of student loan servicers in an attempt to examine and eliminate any duplicative efforts already required at the federal level.

  • The Department of Education should identify and act on opportunities to effectively collaborate with stakeholder agencies.

  • FSA should hire an outside agency to complete an independent financial analysis of the true cost of providing high-quality loan servicing.

  • The Government Accountability Office should perform a review of FSA’s procurement function to determine if it is using its procurement flexibility effectively and establish whether additional flexibility is necessary.

  • FSA should increase the transparency of data regarding its Direct Loan portfolio and allow qualified researchers to access servicing data.

“While there is no question that servicing the federal government's 43 million borrowers and $1.6 trillion in student loans presents challenges, it also presents opportunities for improvement,” NASFAA writes.

Read the full paper, and stay tuned for articles highlighting NASFAA’s recommendations on student loan repayment and loan default.


Publication Date: 5/18/2022

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