Education Department announces revamp of its student loan program

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Loan servicers’ quality of work has left a lot to be desired, says Student Aid CEO

Chalk up another move in the right direction for student loans. In hopes of providing federal student loan borrowers with a 21st-century customer experience, the Department of Education’s (DOE) Federal Student Aid (FSA) office has announced that it is building out a long-term loan servicing solution called Unified Servicing and Data Solution (USDS).

The DOE says it has high expectations for loan servicers going forward, including hitting two key objectives – reducing borrower delinquency and default.

Servicers have little more than a year and a half to get their act together, as the current loan servicing contracts are set to expire in December 2023. As it stands now, loan servicers support borrowers through their time in school and then as they repay their loans. The rub is that each servicer does its own thing – they each have their own website, contact center, staff training protocols, and borrower outreach programs. 

In the DOE’s eyes, the whole system is a can of worms that confuses borrowers. The agency said this fragmented approach has created several issues for the FSA, as well as customers and partners. 

“Frankly, the quality of work has not always met our standards,” said FSA COO Richard Cordray. “Borrowers are understandably frustrated when they receive inconsistent information about something as important as their student loans. Too often, borrowers miss out on available repayment options, and millions have defaulted as a result. More than 35 million borrowers with federally managed student loans are counting on us to help them achieve their life goals through higher education.”

What borrowers can expect

The USDS’ pecking order is pretty straightforward. The first thing it will do is replace the legacy servicing contracts for Direct Loans and federally managed Federal Family Education Loan (FFEL) Program loans with these goals as its target:

  • Providing all federally managed borrowers with complete account management capabilities on;

  • Reducing the disruption of account transfers; and

  • Increasing servicer accountability to reduce loan delinquencies and defaults and other customer service benchmarks through clear, measurable service-level agreements.

FSA officials said they have already taken a couple of important steps to implement the next generation of loan servicing. One is the Next Gen FSA initiative, which is designed to check off the modernization goal.

Another is making it easier for borrowers to find what they’re looking for in one place. To that end, the agency says it continues to refine its Digital and Customer Care (DCC) platforms, which include the website and a data platform called the Enterprise Data Management and Analytics Platform Services.

The agency said the clock has already started ticking and hopes to have everything in place within five years of the go-live date. In the meantime, borrowers should see some incremental improvements. Officials plan to enhance servicing functionality through a single FSA-branded interface, by building out a servicing data repository to improve the account transfer process, and by enhancing cybersecurity.

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