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ED Outlines Roadmap for Next Generation of Federal Student Loan Servicing

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

Federal Student Aid (FSA) on Friday provided stakeholders with an updated roadmap on their efforts to replace the legacy servicing contracts for Direct Loans and federally managed Federal Family Education Loan (FFEL) Program loans, and how they plan to go about transitioning to a unified servicing landscape that will modernize and enhance the federal loan servicing environment — with lofty plans to implement the transition by the end of 2023.

The discussion follows Richard Cordray, FSA’s chief operating officer, detailing the administration’s plans to solicit applications for its “Unified Servicing and Data Solution (USDS)” that will establish a new servicing system, representing the culmination of the Next Gen FSA initiative.

“This initiative modernizes FSA’s technology, processes, and operations to improve the user experience and outcomes for students, parents, and borrowers,” Cordray said in a blog post detailing the roadmap. “We are building on investments made in recent years, such as the Digital and Customer Care (DCC) platforms — which include the StudentAid.gov website — and a data platform called the Enterprise Data Management and Analytics Platform Services (EDMAPS).”

During a call with stakeholders, Department of Education (ED) officials highlighted that the servicer solicitation had been posted.

“Since 2009, the number of Direct Loan borrowers has more than quadrupled, accompanied by increasing complexity in loan servicing,” said NASFAA Vice President of Public Policy and Federal Relations Karen McCarthy. “We applaud ED's proposed improvements, many of which have been recommended by NASFAA, including a focus on at-risk borrowers, accountability, and progress toward a single sign-on for borrowers.”

Just last week, NASFAA released a white paper examining the current shortcomings of the student loan system, including in repayment, servicing, and default, and argued that loan forgiveness absent any comprehensive reform to the entire system — though welcome to borrowers — would be incomplete. The paper provides more than 30 targeted, systemic policy solutions to improve student loan servicing practices, rethink the terms and conditions of student loan repayment, increase institutional and program accountability, and reform student loan default.

The objective of FSA’s new servicing system is to overhaul the student borrower experience by transitioning the entire student aid experience — from completing the FAFSA form, to successfully repaying loans — to StudentAid.gov.

In detailing the history of servicing procurement, the department also underscored that FSA has increased its oversight of the growing loan portfolio since 2009 — when 9 million Direct Loan borrowers held $154 billion in student loan debt, compared with 37 million Direct Loan borrowers holding $1.4 trillion in loan debt in 2022 — and that amid the added complexity the agency had maintained similar staffing levels throughout, growing from roughly 1,100 to 1,300 staff.

According to FSA, there will be a “co-branding” effort in this newly developed system where USDS servicers will manage the platforms, contact centers, and manual processing activities for all nonspecialty loan servicing tasks.

Cordray also said that the customer interface and processing work currently associated with specialty programs — such as the Public Service Loan Forgiveness (PSLF) program, TEACH Grants, and total and permanent disability (TPD) discharge — will shift to StudentAid.gov and FSA’s Business Process Operations (BPO) vendors.

During the briefing, ED officials said that they planned to transition all borrowers to a “single sign-on” platform where borrowers will be prompted, through their servicer accounts, to create an FSA ID, so that all their loan information — including repayment options — will be housed within the department’s system.

“USDS servicers will modify their borrower-facing communications to co-brand with FSA and provide account authentication through the FSA ID,” Cordray said. “This will produce a single sign-on experience for customers as they transition to full account management functionality on StudentAid.gov.”

ED officials also said it would identify at-risk borrowers using a modeling system developed and managed by FSA and would establish performance goals that servicers need to meet in order to qualify for performance incentives. Servicers that successfully keep at-risk borrowers up to date on their repayment terms would receive a performance incentive that will be set at FSA’s discretion.

ED issued its request for proposal (RFP) on May 19, and vendors have 60 days to submit proposals. ED will then evaluate those submissions and go through the awarding process. Approved vendors will then need to obtain their authority to operate (ATO) before the new platform is formally launched, with borrowers being onboarded toward the end of 2023.

 

Publication Date: 5/23/2022


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