Advancing the Student Aid Bill of Rights – An Update on Deliverables

Last week, continuing the Obama Administration’s ongoing efforts to help Americans manage their student loan debt, we announced that all Direct Loan student borrowers could cap their monthly payment at 10% of their discretionary income. This plan – Revised Pay As You Earn (REPAYE) – is a game changer for the millions of such borrowers who may be just starting their careers or who need more room in their budget to pursue their dreams.

However, it’s just one part of a larger effort to protect student loan borrowers. President Obama’s Student Aid Bill of Rights included actions and a directive to coordinate across multiple agencies to improve service and outcomes for struggling borrowers. Today, ahead of the President’s January 1st deadline, the U.S. Department of Education is announcing more progress toward the set of goals laid out by the President in March. This release complements the improvements and recommendations that we announced in August 2015 and the October 2015 Strengthening the Student Loan System to Better Protect All Borrowers report that we published at the President’s request.

Specifically, we have:

  • Completed a pilot program to learn how to increase our success at reaching delinquent borrowers to bring them current on their loan payments. Based on the variety of options available to borrowers, it is clear that the ability to have a conversation is key in helping determine which solution best fits their unique circumstance.
  • Published the first Quarterly Private Collection Agencies’ Performance Report to the Office of Federal Student Aid (FSA) Data Center to provide greater transparency on their activities.
  • Implemented a new set of student loan statement disclosures to provide clear and direct information to borrowers.

Improving the student loan experience, including through transparency in data and improved customer service, and helping Americans manage their student loan debt are core priorities of this Administration – and have been since the beginning. We will continue to carry out the steps the President laid out in March to make college more affordable and ease the burden of student loan debt.

Late-Stage Delinquency Pilot

From March through June 2015, FSA conducted a pilot project to explore the impact of increased outreach efforts on the rate of late-stage borrowers who address their delinquency by making a full payment, qualifying for a deferment, or changing their repayment plan. Our goal was to learn how to best reach these borrowers and, ultimately, decrease the rate of student loan delinquencies. The pilot found that:

  • Using the Department of Education’s name and seal on letters and emails to borrowers appeared to increase the likelihood that borrowers responded.
  • Increasing the volume of communication and varying the outreach technique had a positive effect, especially when communications were sent at the same (or near the same) time.
  • Sending communications to borrowers that were tailored to other borrowers like them appears to increase the likelihood that a borrower will respond.

As a result, FSA will use ED branding, such as the Department seal, on more of its communications to borrowers and will make such branding a key requirement of a new student loan servicing acquisition beginning in early 2016. FSA will also continue to analyze and identify the most effective ways to contact the hardest-to-reach borrowers and share those best practices with its servicers. However, the pilot is just the beginning of the process in understanding how to reach delinquent borrowers and help them get back into repayment.

Quarterly Debt Collection Performance Report for Private Collection Agencies (PCAs)

Today, FSA posted the first Quarterly PCA Performance Report to the FSA Data Center. Going forward, this report will be part of the regular quarterly updates to the Data Center. The initial report reflects data from July, August, and September 2015. The report includes, for each PCA, initial inventory size at the beginning of the quarter and the total amount recovered during that quarter via consolidation, rehabilitation, voluntary payments, and wage garnishments. Future releases of this report will include information about PCA compensation.

Enhanced Servicing Disclosures

FSA has directed its servicers to begin providing certain enhanced disclosures and notifications by January 2016.

Quarterly Statement to In School/In Grace Borrowers

All “in school” and “in grace” borrowers with federally held student loans, including PLUS and Grad PLUS borrowers who are in an in-school deferment will now receive a notice, generated quarterly beginning after the first disbursement of a loan. The notice will end at the beginning of repayment. The new notice will provide a real-time view of the borrower’s loan portfolio including actual borrower data for: total principal disbursed, total outstanding interest accrued, current total balance, and interest rate, allowing the borrower to make more informed borrowing decisions as they progress through their college career. The new notice also provides information on the various repayment plans including the initial payment amount, what a borrower would pay monthly based on sample data, the total interest paid, and the total amount paid, as well as a link to the servicer repayment calculator.

Pre-Transfer Notification

When borrowers have been transferred to a new servicer, sometimes they are confused or are cautious of working with a new servicer because their prior servicer had not informed them that their account was being transferred. Now FSA will require the old servicer to tell the borrower, at least 14 calendar days prior to transfer, that they will be transferred to another Federal servicer with the receiving servicer’s contact information. If there are fewer than 14 days until transfer, the notices must go out no more than 4 calendar days after the sending servicer was notified. Servicers will be required to notify via the borrower’s preferred method, or by mail, and the notices will include any current action required of the borrower (based on the borrower’s most recent payment activity).

Public Service Loan Forgiveness (PSLF) and TEACH Promotion

Loan servicers are now required to provide additional information on all initial correspondence to borrowers to promote awareness of the Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness (TEACH) programs. Both PSLF and TEACH are beneficial programs in which borrowers can access student loan benefits based on their work and/or occupation. At the time borrowers apply for forgiveness, they will be required to submit an Employment Certification form for each employer where they worked while making the required 120 qualifying monthly payments. The form, which should be updated annually, is used to calculate borrowers’ progress toward meeting the PSLF eligibility requirements before and after its initial submission. This information will also be available on each servicer’s website and as part of the online Exit Counseling tool at studentloans.gov.

Monthly Billing Statement Enhancements

All servicers are now required to include specific information on every billing statement, similar to what is typically available on other financial statements such as credit card bills or mortgage statements. The additional information will also assist borrowers in understanding how their payments were applied. The required information includes the amount of and effective date of the last payment made, as well as the breakdown of what portion of the last payment was applied towards principal and interest.

Next Year

FSA will institute additional billing statement enhancements and disclosures for all servicers by the end of 2016, such as:

  • An email with the Department of Education’s seal that is an introduction to repayment processes and options will be sent 10 days after notification of borrower’s withdrawal from school.
  • A letter or email from a borrower’s servicer with an introduction to repayment including payment estimate and due dates 15 days after notification of borrower withdrawal from school.
  • Repayment plan information notification after receipt of exit counseling completion confirmation.
  • Department of Education-branded email notice 35 days prior to every due date.
  • Every billing statement for a borrower who has certified his or her employment for PSLF will include the borrower’s current number of qualifying PSLF payments.
  • Department of Education-branded email notice 45 days before income-driven repayment (IDR) renewal due date.
  • Required phone and email follow-up for days 1-15 on all IDR applications that are pending or rejected due to incomplete or missing information.
  • For delinquent borrowers, servicers will be required to send a repayment notification letter with repayment options at 30 and 90 days of delinquency. At 20 days of delinquency, an ED-branded email will be sent indicating the benefit of automatic payment (ACH). At 45 and 180 days of delinquency, an ED-branded email will be sent. Starting at 60 days, servicers will be required to make phone calls every 30 days until 240 days of delinquency.