SEARCH TODAY'S NEWS ARCHIVES

ED Announces New Framework to Hold Loan Servicers Accountable

By Maria Carrasco, NASFAA Staff Reporter

The Department of Education (ED) announced last week its oversight strategy to hold federal student loan servicers accountable for their customer service, as thousands of borrowers reported issues after returning to student loan repayment this fall. 

ED said that its strategy is meant to support borrowers as they “navigate return to repayment” and will hold student loan servicers “accountable for meeting their obligations to students, borrowers, and taxpayers when managing student loans.” Specifically, ED’s oversight strategy focuses on monitoring student loan servicers, tracking complaints, and examining results-based outcomes.

Education Secretary Miguel Cardona said in a statement that the Biden administration “will not allow borrowers to pay the price for unacceptable servicing failures.”

“Today’s announcement should send a clear message to all our contracted student loan servicers that the Department will use the full scope of our oversight and accountability tools to ensure borrowers get the level of service they deserve,” Cardona said in a statement last week. “As the Biden-Harris team works to fix our country’s broken student loan system, we will continue to put the needs of borrowers first and do whatever it takes to support Americans’ success as they return to repayment.”

Part of ED’s oversight strategy includes directly monitoring servicers, partnering with federal and state regulators, and leveraging borrower complaints. The department noted that several of these strategies were used leading up the return to student loan repayment, including secret shopper campaigns and data monitoring.

Specifically, the Office of Federal Student Aid (FSA) is monitoring the quality of customer service provided by loan servicers by listening and scoring calls with borrowers. FSA also reviews borrowers calls and chats, and conducts secret shopper calls to test servicers’ responses. The secret shopper campaigns are directed to issues on borrowers returning to repayment and questions about Public Service Loan Forgiveness (PSLF).

As for partnering with federal and state regulators, ED said it cooperates with the Consumer Financial Protection Bureau (CFPB) and state attorneys general. Additionally, ED highlighted that earlier this year it updated its interpretation of federal preemption in order clarify states’ authority to enforce state consumer protection laws. 

ED is also leveraging borrower complaints, including complaints filed through FSA’s Office of the Ombudsman, which works closely with ED’s loan servicer oversight team. Beyond those complaints, ED monitors news articles and social media posts to track issues that borrowers are reporting. 

In the announcement, the department also outlined actions it will take against servicers if they provide poor customer service to borrowers. ED said it will withhold payment when servicers don’t meet their “contractual obligations or are not meeting acceptable standards” based on the number of borrowers who are not being served. In October, ED announced that it was withholding $7.2 million from MOHELA over issues with billing statements to 2.5 million borrowers.

Borrowers could also be reallocated to a new servicer if they receive poor customer service, or loan servicers could be suspended from receiving new borrowers. ED said it has the authority to allocate new loans to “high-performing servicers.” “Withholding accounts has direct financial impacts on servicers, because their compensation is largely driven by monthly fees for each borrower they service,” ED wrote. 

Other action items include ED’s Contractor Performance Reports (CPARS), a summary report that grades servicer’s work on various issues. ED said the CPARS report could result in a loss of revenue for servicers with poor scores. Servicers can also be put on remediation plans to fix borrower issues, ED noted. 

Beyond these actions, ED said that it will also help protect borrowers from servicer mistakes by directing servicers to put affected borrowers into administrative forbearance until the issue is resolved. Under certain circumstances, ED said borrowers who are put under administrative forbearance will not face issues with their progress for loan forgiveness — such as through PSLF or income-driven repayment — and will have that time accounted for, along with no accrued interest. 

ED also highlighted its process of creating the Unified Servicing and Data Solution (USDS), which is part of ED’s NextGen initiative and scheduled to go live in spring 2024. According to ED, USDS will create several benefits to loan servicer accountability and provide increased cost transparency. 

ED stressed that it takes very seriously its responsibility to hold servicers accountable and ensure borrowers have a “smooth and successful” repayment experience.

“The loan servicing environment has changed drastically since the Department began working with multiple servicers in 2009,” said FSA Chief Operating Officer Richard Cordray in a statement. “FSA is committed to ensuring servicing contracts evolve to meet borrowers' needs. The return to repayment is an unprecedented time in the Direct Loan program, and in 2024, we will transition to new contracts that provide us with updated requirements for servicers and more ways to ensure borrowers get the support they deserve."

 

Publication Date: 11/15/2023


Heather E | 11/15/2023 3:45:30 PM

Although there does need to be accountability for the servicers and the poor service they are providing borrowers, what happens when servicers are hit with these financial losses, which then affects employees, who then can't stay working there to service borrowers? The problem is going to get worse with lack of staff and resources. ED needs to provide a different avenue/solution for this egregious issue.

You must be logged in to comment on this page.

Comments Disclaimer: NASFAA welcomes and encourages readers to comment and engage in respectful conversation about the content posted here. We value thoughtful, polite, and concise comments that reflect a variety of views. Comments are not moderated by NASFAA but are reviewed periodically by staff. Users should not expect real-time responses from NASFAA. To learn more, please view NASFAA’s complete Comments Policy.

Related Content

States Sue to End Biden’s SAVE Repayment Plan

MORE | ADD TO FAVORITES

Today's News for April 2, 2024

MORE | ADD TO FAVORITES

VIEW ALL
View Desktop Version