U.S. Department of Education Strengthens Federal Student Loan Servicing

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U.S. Department of Education Strengthens Federal Student Loan Servicing

Renegotiated contracts incentivize better support for student borrowers; new initiative led by Under Secretary Mitchell will continue to improve service

August 29, 2014

As a result of President Obama’s executive actions to help make student loans more affordable, the U.S. Department of Education has announced several new steps to help federal student loan borrowers better manage their student debt. Following up on the commitments outlined by President Obama in June, the Department has renegotiated the terms of its contracts with federal student loan servicers in order to strengthen incentives for them to provide excellent customer service and help borrowers stay up-to-date on their payments. This action will help ensure that borrowers receive the highest quality support as they repay their federal student loans and help the Department better monitor the performance of loan servicers to help them continue to improve.

In addition to these important steps, today Secretary Duncan has directed Under Secretary Ted Mitchell to explore additional action the Department can take that will further strengthen the federal direct loan program to be even more responsive to the needs of borrowers both now and in the future. In the coming weeks, Mitchell and the Department’s Office of Federal Student Aid will announce a series of opportunities to hear directly from student loan borrowers and stakeholders about their ideas for improving the federal student loan program. By the end of the year, he will use this feedback to make key recommendations that will focus on solutions that can help struggling borrowers.

In the coming weeks, the Department will also begin the process to amend its regulations and allow more borrowers to cap their payments at 10 percent of their monthly incomes under an expanded Pay As You Earn repayment plan option, ensuring that students can repay their debt.

“All hard-working students and families deserve high-quality support from their federal loan servicer, and we are continuing to take steps to make sure that is the case,” Secretary Duncan said.

In administering the federal student loan programs, the Department's top priority is to help students pursue and complete quality higher education programs. The performance-based contract renegotiations emphasize the importance of helping borrowers stay current on their loans and avoid default, while also incentivizing customer satisfaction. Loans will be assigned to servicers based on how well they perform on these and other metrics. This competitive structure to the contracts will ensure that borrowers receive high quality service while maximizing value for the taxpayer.

The renegotiated terms of the federal student loan servicer contracts are structured to create additional incentives for servicers to focus on the Department's priorities: effective counseling and outreach to ensure borrowers select the best repayment option for them, and enhanced customer satisfaction for student and parent borrowers at all stages of the student loan life cycle. These incentives include:

  • Revised performance metrics that increase the weight of the existing borrower customer satisfaction survey from 20 percent of the overall score to 35 percent.
  • A payment structure that focuses on servicers' success in keeping borrowers in on-time repayment status and helping borrowers avoid default.
  • Additional incentives tied to each servicer's success in reducing delinquency in payments across their portfolio.

In addition, the Department is doubling down on efforts to make sure America’s active duty service members are served well, requiring loan servicers to focus dedicated resources and enhance outreach and information efforts for this important population.

The revised metrics will replace the federal student loan servicers’ quarterly and annual customer satisfaction survey scores and the default prevention statistics used to determine each servicer's allocation of new loan volume. The most recent scores are published here. Additionally, in an effort to promote transparency and provide easily accessible data for customers and stakeholders, the Office of Federal Student Aid (FSA) recently shared updated information on its website about student loan servicers, repayment plans status and student loan delinquency rates.

The Department also has contracts with seven not-for-profit entities to service student loans. These entities have operated under separate pricing and performance metrics, but beginning October 1, most of the changes discussed above also will be extended to the not-for-profit entities so that all Department servicers will operate under common pricing and performance metrics. While previously these entities have only serviced existing loans, they will also begin to receive new borrower accounts in early 2015.

Current federal Title IV Loan Servicers (TIVAS) include: Great Lakes Educational Loan Services, Inc. (Great Lakes); Nelnet Servicing, LLC (Nelnet); Pennsylvania Higher Education Assistance Agency (PHEAA); and Navient, LLC. These companies were first awarded performance-based contracts in 2009. Current not-for-profit servicers include: Aspire Resources Inc, Utah Higher Education Assistance Corporation (UHEAC), Educational Servicers of America, Inc. (ESA), New Hampshire Higher Education Loan Corporation (NHHELC), Missouri Higher Education Loan Authority (MOHELA), Oklahoma Student Loan Authority (OSLA), and Vermont Student Assistance Corporation (VSAC).These entities received contracts between October 2011 and October 2012.

More information about the performance of federal student loan servicers can be found on the Department’s website at studentaid.ed.gov.

The Office of Federal Student Aid (FSA) administers and oversees the federal student financial assistance programs, authorized under Title IV of the Higher Education Act of 1965 (HEA). These programs represent the largest source of student aid for postsecondary education in the United States. The Office of the Under Secretary manages policies, programs, and activities related to postsecondary education.