Prepared remarks of U.S. Under Secretary of Education Ted Mitchell at the Federal Student Aid (FSA) Servicing Summit in Atlanta, GA
Prepared remarks of U.S. Under Secretary of Education Ted Mitchell at the Federal Student Aid (FSA) Servicing Summit in Atlanta, GA
[Note: Under Secretary Mitchell deviated from his prepared remarks]
Good Morning! I want to welcome you all to Atlanta, and to thank you for participating in today’s event. This morning’s forum is something we’ve never done before, but Jim and I thought it was important to do given the increasing prominence that student loans have in the lives of both individuals and the nation.
As we all know, college matters more than ever, both for individuals and the common good. Paying for college remains the best investment anyone can make in their future. And, Pell grants and Federal student loans make that dream a reality for millions of students. But while the benefits of higher education are clear, an increasing number of students face real challenges as they work to repay their loans.
To help ensure we are doing all we can to effectively service loans and assist borrowers, Secretary Duncan asked me to lead the Department’s efforts to improve the borrower experience as it relates to servicing with the goal of reducing loan defaults. This is critical given that defaults can devastate individual credit ratings and have the potential to create a drag on the national economy.
One theme to which I will return is the importance of thinking about the entire lifecycle of the borrower experience... beginning with information about loans, the borrowing decision, in-school counseling, selecting among payment options, servicing and, in some cases collections and default, but in the majority, successful repayment or forgiveness. We are aiming to do just that. Today, we will take a hard look at loan servicing and in that regard, I hope to build on my recent conversations with many of you as well as other advocates, researchers, student groups, and institutions. Today is an opportunity for you to ask questions of the experts who run servicing programs and contracts at FSA, and to let us know what we could be doing better and what we might think about doing differently.
FSA is an organization that is, by definition, dedicated to serving students. And we want to enlist you as partners in our endeavor to create a stronger, better, and long-lasting Direct Loan program that best serves students. Your questions and suggestions will help us improve our policy-making, operational systems, and processes that directly serve the nation’s borrowers.
I’d like to take a few moments this morning to highlight just some of the actions the Obama Administration has already taken to strengthen the Direct Loan program and improve borrower processes and benefits. Next, I’ll discuss some of the steps that, earlier this year, the President has asked us to take. And finally, I will highlight some of the ideas and suggestions we have heard from you and others about steps we ought to consider undertaking in the next two years and beyond.
SERVICING ACTIONS TAKEN
Student loan reform was one of the Administration’s first significant accomplishments in higher education and the realization of a vision long sought by many in this room today. Loan reform allowed us to move billions of dollars from bank fees back into the aid programs. It has also allowed us to focus on creating a strong and focused borrower experience. Since enactment, the Administration has taken steps to make it easier for student borrowers to apply for loans, as well as learn about and access repayment information and benefits. At the heart of these and other changes is our intention to communicate directly and more frequently with borrowers to give them the tools they need to understand and manage debt. I think it’s important to review this progress to give examples of where--working together--we really did some impactful things for student borrowers.
- In 2010, with the help of our colleagues at the Department of Treasury, we created the Income Data Retrieval Tool, which permits FAFSA applicants to access their tax data direct from the IRS and seamlessly import it into their FAFSA. This process has a number of advantages, including making easier and quicker to apply for Federal student aid; improving the accuracy of aid awards and, thereby, reducing improper payments; and, reducing the burden that the verification process imposes on both borrowers and institutions. We subsequently leveraged the Data Retrieval Tool to make it easier for borrowers applying for the income driven repayment (IDR) plans.
REPAYMENT INFORMATION AND BENEFITS
- To increase borrower awareness about their repayment options, we began a targeted email campaign to directly communicate with borrowers about the IDR plans. We leveraged the behavioral insights team at the Office of Science and Technology Policy to evaluate what works and what doesn’t in these campaigns and are continuing to refine our messages and methods.
- Our new web based Repayment Estimator went online in March 2012 and a new online application for IDR plans was made available in December 2012. These new tools and processes have made understanding and applying for the various repayment plans much easier, significantly reducing the burden on borrowers. We know there is more to do and we are continuing to look for more ways, and your suggestions, to make further improvements.
- As a result of new regulations, borrowers seeking Total and Permanent Disability discharges can now apply with a single application sent directly to a single servicer, rather than sending multiple applications to multiple loan holders or servicers. Moreover, we streamlined the application process for many Social Security Disability recipients by collaborating with the Social Security Administration. With the use of redesigned and web pages, an on-line application process, and a dedicated call center, we’ve worked to reduce barriers for borrowers and their physicians. Already, customer contacts related to loan discharge for TPD declined by more than one-third in FY 2014 when compared to the prior year. We hope to do more.
SERVICING ACTIONS UNDERWAY
While these steps are significant accomplishments in and of themselves, earlier this year the President reaffirmed the nation’s commitment to provide a quality education for all of our students and asked the Department to take additional action to help borrowers manage their student loan debt. He laid out a number of specific steps the Administration would undertake in this regard and we are making progress on all fronts. These include:
- Extending the Pay as You Earn (PAYE) plan to more borrowers. Currently, PAYE is not available to students with older loans (those who borrowed before October 2007 or who have not borrowed since October 2011). We recently held two public hearings to begin the process to amend our regulations to extend PAYE such that an estimated 5 million additional borrowers with federal student loans can cap their monthly payments at just 10 percent of income.
- Strengthening incentives for our loan contractors to ensure they continue to serve students well. In August, we announced new contract pricing and incentives designed to help borrowers repay their loans on time, reduce payments for servicers when borrowers become delinquent or default, and increase the weight of borrowers’ customer satisfaction when allocating new loan volume among our servicers. We also sought to increase the focus and resources made available to our military servicemembers with Federal student loans. This includes requirements for dedicated contact points, specialized training and staffing, and premium pricing for military servicemember accounts.
- Additionally, we revamped our processes to ensure that our eligible servicemembers pay reduced interest rates, as applicable, in accordance with the Servicemembers Civil Relief Act, or SCRA. At the beginning of the year, we directed our loan servicers to match their student borrower portfolios against a Department of Defense database to identify SCRA eligible active-duty service members. As a result of that match, the Department will automatically reduce interest rates to the maximum 6% rate permitted by SCRA without the need for additional paperwork or action by the servicemember. And in August, we released guidance for FFEL servicers, allowing them to use the same streamlined process.
- We’re also taking steps to heighten the oversight and monitoring of our servicers and the private collection agencies under contract to collect on defaulted student loans. This includes, for example, reviewing and following up on borrower complaints associated with private collection agencies.
- We’ve also been collaborating with a number of groups to promote awareness of our repayment plans and other Federal Student Aid benefits. Our excellent Digital Engagement team does this work on a regular basis, leveraging social networks like Twitter and Facebook to get the word out about repayment options and where to go for more information if a student has question about filing a FAFSA. But they also work with outside organizations to leverage specialized networks and knowledge to target information about Public Service Loan Forgiveness, for example. AFT, NEA, the YMCA, and SEIU are just some example of organizations we’ve worked with this year to get the word out. If you are a part of an organization that is interested in partnering with FSA or would just like to talk to someone about what materials and resources we have available, please let us know. And, if you’re not following Federal Student Aid on Twitter you should, because it’s really quite good and full of helpful information for students as well as practitioners who help students and borrowers manage their debt: @FAFSA.
- In conjunction with our colleagues at Treasury, we’ve also partnered with two of the U.S.’s largest tax preparation firms. This year, we worked with Intuit, Inc., through its TurboTax product, to communicate information about federal student loan repayment options during the tax filing process and will be building on that partnership next year as well. And we’ve started working with H&R Block to provide their customers with information about federal student loan repayment at times when people are thinking about their finances.
- We are also collaborating with Treasury to help educate students, families, financial aid administrators, and tax preparers to ensure that all students and families understand what education tax benefits they are eligible for and receive the benefits for which they qualify, including the American Opportunity Tax Credit (AOTC)—another of the President’s significant achievements aimed at making college more affordable. The AOTC provides up to $2,500 for each of 4 years of postsecondary education. But the process of claiming education tax credits like the AOTC can be complex for many tax filers. So we are excited to be working with Treasury to help make sure families take advantage of the AOTC. In fact, there are sessions at this year’s conference designed to help financial aid administrators who we hope, in turn, can help students and their families maximize their tax benefits for this very purpose.
SERVICING ACTIONS CONTEMPLATED
I am going to use my remaining time this morning to give a high level overview of some of what we are planning or thinking about for the next couple of years. Again, I think it is critical to these efforts that we hear from you.
As I mentioned earlier, one can't really understand the issues surrounding student debt, and especially default, without looking at the entire lifecycle of a student borrower. In the last decade, our capacity to use data analytics has allowed us even greater insight into why one borrower is able to receive the highest return on their higher education investment while others end up in trouble at some point.
For traditional students, this starts in high school, and even earlier, when students first begin to think about pursuing postsecondary education. Where to go to college and how to pay for it are some of the biggest financial decisions people will make in their lives and we must do more to make sure students are equipped with the knowledge, tools, and resources to better inform that process.
- We are working with the First Lady's Reach Higher initiative engaging college counselors and working to promote FAFSA completion. Specifically, the Department has expanded the FAFSA Completion Initiative in which designated entities can receive information on the filing status of a student’s FAFSA in order to encourage early FAFSA completion and more effectively counsel students during the college application process.
- For both traditional and so called non traditional students, we regard the FAFSA as the beginning of a conversation about college going. Another thing that we are exploring right now is whether we can leverage the information a student provides on the FAFSA to proactively send them information about borrowing and selecting a college. Most first-time FAFSA applicants ask to have their FAFSA information sent to only one school and we know that, for many students, shopping around for college might provide a better option. By targeting information about college choice for these students, routing them to the College Navigator, for example, we might be able to improve outcomes.
- When students get to college, we know that entrance counseling provides important information about loan obligations. We are developing new guidance for institutions, through a Dear Colleague Letter, on strategies they might employ to improve their students’ financial literacy and understanding of student debt. This guidance will clarify certain questions we have received concerning the flexibility institutions have when developing their Federal Direct Loan counseling policies.
- Which brings me to another important point I’d like to make - schools and institutions have a vital role in helping students understand and manage their finances, including student debt. My office has been working closely with the U.S. Department of Treasury on the Financial Literacy and Education Commission and the President’s Advisory Council on Financial Capability for Young Americans to improve the financial capability of young Americans. A number of schools and institutions have already stepped up by providing financial literacy courses and integrating financial education into student life on campus. When these things are integrated, it can help set borrowers up to make more sound financial decisions as they relate to their student loans and other finances. Schools can also help smooth the handoff between in-school, grace, and repayment by letting students know that they have a student loan servicer, and to reinforce they idea that they should reach out and ask for help if they get in to trouble. One of our hopes for the day and beyond is to establish mechanisms for institutions to share best practices in this important set of activities.
- In addition to extending the President’s PAYE plan, we are exploring the feasibility of creating a process whereby borrowers can authorize access to their future income information for the purposes of maintaining their IBR or PAYE enrollment. We are hearing that the current process is too cumbersome. Many borrowers may be failing to complete the annual recertification process and instead become delinquent, falling out of a program that was intended to avoid delinquency and default in the first place. There are a number of income sharing data and operational barriers to a process like this, but we are working with the Treasury Department to try to come up with a solution. It remains too early to tell whether we will be successful, but we are working hard on this.
- Significantly, we are also beginning our planning to conduct a new competitive procurement for loan servicing contracts. Just last week, on November 25th, FSA released a request for information seeking suggestions on how we can better manage our growing portfolio in a manner that will improve borrower outcomes. Given our extensive experience with the current multi-servicer, multi-system contract model, we are particularly interested in hearing about alternative approaches. One of things we are considering, for example, and that some here today have encouraged us to consider, is how servicers communicate with borrowers. Currently, Federal direct loan servicers are permitted to communicate with borrowers using their own corporate branding. We are considering moving away from that and more toward a DL branding strategy. I hope you will all take the time to share your thoughts with us through the RFI, in addition to other venues.
- We are also in the midst of recompeting our contracts with private collection agencies, and intend to improve the incentives in those contracts to lead to better borrower outcomes.
- Finally, we’ve heard from many of you that we need to update our complaint system at the Department, and I am proud to say that we will be establishing a new system for consumer complaints. However, we need your help. Over the next few months, I’d like to invite your comments and suggestions on the scope and development of this system. There are a number of policy questions to consider in establishing a new system. In creating the new system, we hope to:
- Create a greater-level of transparency for customers and stakeholders;
- Make it simple and easy to use for customers;
- Identify trends to drive service improvements across the entire lifecycle; and,
- Enhance metrics to better assist with vendor comparison and oversight.
We plan on evaluating several existing complaint systems, including the CFPB and VA portal, across industries, to learn from best practices and lessons learned.
I’m proud of the good work we’ve done so far in better communicating with borrowers and improving the overall borrower experience, but there is definitely more to be done. It’s critical that we make the Federal Direct Loan program more consumer-friendly for borrowers and their families, throughout the borrower lifecycle. As we develop and pursue that strategy, we look forward to fostering a permanent partnership with student and consumer groups, institutions, and other borrower advocates to help keep us on the right track.
We cannot do this work alone and I hope you will support us. I also hope you will push us to do more, and tell us where we can make improvements. And, I hope that you will help us think about the long-term, big picture when it comes to higher education financing. We know that student debt rises hand in hand with college cost and price. While we must do what we can to make debt more manageable, we must vigorously pursue initiatives that encourage institutions to hold down costs and policies that encourage states to once again carry their fair share of the nation's investment in higher education. But even as we make headway against these broad challenges, without federal support for higher education, we run the risk of pushing people out of a college education, and, ultimately, putting the American dream out of reach.
I want to thank you all again for joining the dialogue today and I hope you all get out of it as much as I know we will and that the conversation continues in the coming months and years as we work to improve the federal student loan borrower experience.