Giving Borrowers the Experience They Deserve; New Vision for Federal Student Loan Servicing

For the more than 40 million hard-working Americans with federal student loans, getting through school and paying down debt can be hard enough. Borrowers shouldn’t also struggle to find accurate information and support to navigate the repayment process.

Underscoring his vision for an affordable, quality education for all Americans, last spring, President Obama set forth a new Student Aid Bill of Rights to further strengthen loan servicing and support Americans struggling with student loan debt.

Wednesday, the Department of Education (Education) took a critical next step in that effort. In a memorandum to its Office of Federal Student Aid (FSA) written in consultation with the Department of Treasury and the Consumer Financial Protection Bureau (CFPB) and informed by input from students, consumer advocates, and stakeholders – the Department of Education further directed ways to ensure Americans with student loan debt get high-quality customer service and fair treatment as they repay their loans.

The memorandum directs FSA to implement the Department’s new vision for student loan servicing through specific requirements to make sure that all borrowers have access to an affordable repayment plan, reliable information, fair treatment, and the high-quality customer service they deserve, including:

• Realigning incentive structures for loan servicing vendors to help borrowers stay on top of their loans and avoid default while avoiding fixed-fee structures that create a disincentive to help struggling borrowers;
• Ensuring that vendors provide accurate information to borrowers about account features, borrower protections, and loan terms, in plain language; 
• Strengthening consistency in borrower communications and implementing a common set of servicer practices to reduce confusion for borrowers;
• Monitoring servicing vendors and integrating information on student complaint resolution to improve oversight; and
• Helping borrowers hold servicers accountable for their performance by increasing data transparency and reporting requests for assistance, escalations, and appeals.

This work builds on President Obama’s historic investments, since the beginning of his Administration, to expand college opportunity, improve college completion, keep college affordable, and ensure that student debt is manageable. The Administration has:

• Doubled investments in grant and scholarship aid, helping 8 million students receive Pell grants and 10 million families receive the American Opportunity Tax Credit to pay for college; 
• Simplified the Free Application for Federal Student Aid (FAFSA) to help students and families access critical student aid dollars; 
• Supported students and families to help them make strong college choices by providing better information about college costs and quality through the College Scorecard;
• Provided options for all Direct Loan student borrowers to manage their debt through options like the President’s Pay as You Earn (PAYE) plan, which caps monthly student loan payments at 10 percent of income; and  
• Seeded innovation and competition to help colleges reduce costs and improve quality, including $135 million in First in the World grants.  

This week’s actions are another step in the President’s initiative to stoke more competition in sectors critical to American consumers -- a new effort he outlined in his Executive Order earlier this year. 

Creating a new loan-servicing system for all federal student loans will mean that any borrower can log into a single website to access information, make payments, apply for benefits, and manage their account. Multiple customer service providers will be able to plug into a central platform, ensuring that borrowers experience a consistent quality of service, and making sure that they know that the U.S. Department of Education is the servicer of their loan.

The existing system without this central platform and without these common standards doesn’t deliver the best outcomes for consumers in a competitive manner. Our goal is to make sure that borrowers can rely on high-quality customer service and fair treatment while repaying their federally held student loans, regardless of the company handling their account. And borrowers will benefit from better information, greater data transparency, and competition among customer service providers. 

We will continue working hard for hardworking Americans, doing all we can to ensure that students and their families who make this important investment in themselves and their futures have everything they need to take their place in our growing economy.  When they borrow in order to invest in their future, we will make sure to help them successfully manage their student loan debt.