Democratic Senators Urge ED to Crack Down on Loan Servicing Standards

By Allie Bidwell, Communications Staff

Ten Democratic senators sent a letter last week urging the Department of Education (ED) to strengthen loan servicing standards and borrower rights under the upcoming overhaul of federal student loan servicing.

“For millions of Americans, federal student loan servicers are their primary point of contact when they are struggling to repay their loans or seeking actionable information about their repayment options,” the senators wrote in the letter to Education Secretary John B. King Jr. “As such, it is critical that federal student loan servicers do everything they can to help borrowers effectively manage their federal student loans and, if necessary, help borrowers find the alternative program that best fits their needs. Servicers, however, have not always put the interests of students and families first in their business practices.”

The letter went on to describe some of the customer service issues borrowers have documented and reported to the Consumer Financial Protection Bureau (CFPB) over the last several years.

Several months ago, ED announced its intention to develop a single loan servicing platform for all federal student loan borrowers.

“We envision a new system where it is easier for borrowers to navigate loan repayment and clear enough to show how the system is performing and where improvements are needed,” Under Secretary Ted Mitchell wrote at the time.

Mitchell wrote in a blog post late last month that ED will soon release a list of vendors – or contracted loan servicers – ”who meet the technical capabilities to begin building the new system, which includes the single servicing platform that is critical to creating an improved, common borrower experience.”

“This will ensure that borrowers experience a consistent quality of service while allowing different loan servicing vendors to focus on the parts of the loan servicing process that they do best, instead of every vendor having to do everything,” Mitchell wrote. By the end of the year, ED’s Office of Federal Student Aid (FSA) plans to select one vendor to build the new platform, and in the future, FSA will select additional vendors to “provide direct customer service to borrowers,” Mitchell added.

In the letter, the senators applauded ED for taking steps to overhaul the federal student loan servicing system through a competition.

“We strongly support [ED’s] goal in this competition ‘to enhance oversight and accountability and improve customer service by creating a new loan-servicing system for all federal student loans,’” the senators wrote. “We believe this competition can be a game-changer for millions of federal student loan borrowers. It can also cement and protect the legacy of the Direct Loan program that realized tens of billions of dollars in savings to taxpayers and created strong new protections for students. However, we are concerned that, if improperly executed, this competition could simply result in the same old players with the same old problems, while borrowers continue to suffer.”

The senators made several recommendations for ED and FSA to consider during the process, including:

  • Putting student loan servicing principles into action as “contractually enforceable standards.”
  • Use the new standards to servicers accountable for providing “high-quality customer service that results in borrowers receiving consistent, accurate, complete, and actionable information about their repayment or debt relief options and helps them manage their student loans through high-touch, consumer-friendly counseling.”
  • Ensure the competition results in “a servicing platform that allows multiple customer service providers to compete to best serve students.”
  • Ensuring past performance is “the most important non-cost factor in the evaluation” of the vendor that will build the platform.
  • Shifting the financial incentives for servicers by paying them based on how well they serve borrowers, and rewarding those that “demonstrate strong performance in a more targeted manner.”

“Student loan servicers are a critical link between borrowers and the Department of Education,” the senators wrote. “With about one in four student loan borrowers in default or delinquent on their federal student loans, it is critical that the Department step up to address the student debt crisis and ensure that all service providers in the student loan program are doing everything they can to put students and families first.”


Publication Date: 7/19/2016

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