The Student Loan Servicing System Borrowers Need

By Megan Walter, NASFAA Policy & Federal Relations Staff

Moderator:
Roberta Johnson, Director of Financial Aid at Iowa State University

Speakers:
Justin Draeger, NASFAA President & CEO
Megan Walter, NASFAA Policy Analyst

NASFAA President and CEO Justin Draeger and Policy Analyst Megan Walter took the stage for a session outlining NASFAA’s recommendations in a recently released report sponsored by Arnold Ventures on improvements to the student loan servicing system. 

Draeger started the session by discussing why NASFAA felt compelled to take on this breadth of work, showing headlines of recent articles talking about the instances of poor servicering, the current student loan debt, and how low-income borrowers are being failed by their servicers. 

He then went digging into the history of the student loan programs, starting with the creation of the Federal Family Education Loan (FFEL) program, and then the migration into the Direct Loan program. 

From there, Walter covered the current student loan servicing environment and how the system as is it today is somewhat disjointed, as the servicers, data warehouse, and default servicing all operate independently from the Federal Student Aid (FSA) digital platform, and only a few servicers provide customer service within the platform. She then spoke about FSA oversight and how the structure of the legacy loan servicing contracts — which largely provide servicers with operational autonomy, the use of commercial branding, and lack appropriate accountability metrics — results in inconsistencies across servicers, oversight challenges, operational complexity, and inefficiencies, among other things. Lastly, Walter outlined the Department of Education (ED) organizational chart, highlighting that while Congress originally intended for the FSA chief operating officer (COO) to be directly accountable to the secretary of education, but in practice, the COO has often reported through the Office of the Under Secretary. 

Next, Walter laid the groundwork for the previous iterations of servicing procurements that FSA has tried to push through to no avail. When she introduced the most current procurement, the Unified Servicing and Data Solutions (USDS), she mentioned that this is the fifth solicitation that FSA has introduced since 2016. 

Under the USDS system, FSA is no longer seeking to purchase or build a single platform to service accounts or reduce the number of platforms used, or purchase or license platforms from servicers. For branding, FSA plans on co-branding to start, with the goal of eventually moving to full ED branding, as well as the use of a single sign-on login for all servicers, using the already established FSA ID.

Unlike past procurements, Business Process Operation (BPO) vendors will not replace the USDS servicer contact centers and manual processing. Instead, USDS servicers will manage their own contact centers and manual processing for standard benefits, including the income-driven repayment (IDR) plans, deferments and forbearances, and most discharges. BPOs would instead focus on processing the speciality programs (e.g., PSLF, TEPSLF, TPD, and the TEACH Grant Program).

Lastly, Walter outlined the timeline for the USDS contracts, and assuming no delays, FSA plans to award contracts this winter and start reframing the system by December 2023. 

To close the session, Draeger reiterated the recommendations within the report that focused on improving the student loan servicing system.

 

Publication Date: 6/27/2022


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