The U.S. Department of Education has announced a set of changes to improve the performance, transparency and accountability of student loan servicers before the restart of repayment in February 2022. The payment pause and interest waiver is set to end on January 31, 2022. Millions of borrowers will also be transferred to new student loan servicers.
Six federal student loan servicers have signed servicing contract extensions that incorporate new, ... [+]
The servicing contracts for six student loan servicers have been extended for two years, but with new, tougher servicing standards.
- The servicers are required to comply with all federal, state and local laws about student loan servicing, not just federal law.
- The servicers are required to respond to borrower complaints in a timely manner, including complaints filed with federal, state and local agencies.
- The servicers will no longer be able to use mandatory arbitration agreements to shield themselves from lawsuits concerning servicing practices.
- Poor performance will be penalized by withholding new loan volume from the underperforming servicer, which will reduce their servicing revenue under the contract.
The U.S. Department of Education says that it is also planning other changes to provide borrowers with “the clear, accurate, and timely information they need to manage their federal student loans.” These changes will include standardizing borrower data across servicers to simplify the process of transferring borrowers between servicers.
New Servicing Standards
In addition to being graded on the servicers’ performance in preventing student loan delinquency and default, the new servicing standards will include several new performance standards.
- How well the servicers help borrowers navigate student loan repayment options (e.g., forbearance vs. income-driven repayment).
- How well the servicers answer borrower questions.
- Whether the servicers correctly processed the borrower’s requests.
- Whether the servicers have minimized call wait times, measured by the percentage of borrowers who hang up before reaching call center staff.
- Ratings of the overall level of customer service provided to borrowers.
Student loan servicers who do not reach quarterly goals based on these servicing standards will have new servicing volume reduced. Servicers who satisfy these goals will be rewarded with increased servicing volume. Servicer revenue is tied to the number of borrowers serviced.
There will be a special emphasis on helping at-risk borrowers, such as recent college graduates and borrowers who have previously defaulted on their federal student loans.
Other changes include increases in the number of Spanish-speaking call center staff and expanding core call center hours to include Saturdays.
New Reporting Requirements
The U.S. Department of Education will have better access to the servicing platforms used by the student loan servicers. This will provide the U.S. Department of Education with the ability to directly monitor servicing performance.
The servicers will also be required to provide the U.S. Department of Education with several new reports:
- The reasons why a borrower contacted the student loan servicer.
- How long it takes the servicer to process applications for deferments, forbearances, change in repayment plan, annual income certification for income-driven repayment plans and applications for loan forgiveness and discharge.
- Application approval/denial rates and which applications are denied.
- All complaints filed by borrowers directly with the loan servicer.
The U.S. Department of Education will make key servicer performance metrics available to the public.
Six Student Loan Servicers Signed Contract Extensions
The six servicers who agreed to the new contracts are Great Lakes, HESC/EdFinancial, MOHELA, Nelnet
FedLoan Servicing (PHEAA) and Granite State previously announced that they would no longer service federal student loans. The U.S. Department of Education will transfer these loans to the other servicers. About 10 million borrowers have loans serviced by these two servicers, and an addition 6 million borrowers are serviced by Navient.
According to a U.S. Department of Education press release, these extensions were negotiated at no additional cost to taxpayers.
