Speak Up on Student Loan Servicing

A couple months ago – as part of our ongoing work to help Americans manage their student loans – the Department of Education launched a process to overhaul our student loan servicing for a better borrower experience.

As we said then, our goal is ultimately to enhance oversight and accountability and improve customer service by creating a new loan-servicing system for all federal student loans that includes a new, single platform that clarifies for all borrowers that they have Department of education loans. This platform will mean that any borrower can log into a single website to access information, make payments, apply for benefits, and manage their account. In the future, multiple loan servicing vendors or “customer service providers” will plug into the platform. This will ensure that borrowers experience a consistent quality of service while allowing different loan servicing vendors to focus on the parts of the loan servicing process that they do best, instead of every vendor having to do everything.

In the coming days, the Department’s Office of Federal Student Aid (FSA) will take the next step forward in that process, releasing the list of vendors who meet the technical capabilities to begin building the new system, which includes the single servicing platform that is critical to creating an improved, common borrower experience. Ahead of that announcement, we wanted to provide some context and information about what comes next.

First – it’s important to understand what this list is (and what it’s not). These will not be the only vendors that have an opportunity to play a role in the new loan servicing system when all is said and done (more on that in a minute). These are vendors that have the technical capabilities, among other factors, to build the new servicing platform – the engine of the new system—and the functionality that will allow other customer service vendors, not just the vendor selected under this procurement, to use it. What hasn’t been determined yet are the detailed criteria for building the platform that best serves borrowers and for which these vendors will develop proposals in competing for a contract. That’s the next phase, and we need your help to get ready.

The federal contracting process is a little arcane, but here’s the gist: a vendor will ultimately be chosen based on whether it best meets not just the technical capabilities, but a full set of FSA requirements around borrower servicing needs for the contract. Those requirements will be informed by the Department’s policy goals – including recognizing the rights we expect to see for borrowers and the responsibilities and track record of success in serving consumers that we expect. Those requirements will be in the solicitation documents for which we are preparing.

Last fall, we began that work by issuing a joint statement of principles with the Treasury Department and the Consumer Financial Protection Bureau. And this spring we laid out key borrower protections and servicing standards for our new loan servicing system. Now we need to fill in the details.

We know that some borrowers haven’t always felt like they were treated fairly or gotten the timely, effective help they needed under the current system. We’ve heard from borrowers about some of the challenges they are facing when managing their student loans and over the next few weeks, we will continue working with experts and stakeholders to identify the best ways to fix those issues and protect consumers. And we’ll be continuing to work with our federal and state government partners. But most importantly we want to hear directly from borrowers and members of the public to ensure that borrowers’ experience are at the center of our efforts. Your participation is critical to this process. Please make your voice heard by emailing us at ousevents@ed.gov by Friday, July 15.

Here’s what will happen next:

By the end of the year, FSA plans to choose the vendor that will build the new platform. It’s worth noting here that in obtaining the platform, the Department plans to acquire unlimited rights to use it, without additional cost, during and after the contract’s period of performance. Since the Department will own the system and because multiple vendors will use it in the future, no one servicer can become “too big to fail,” holding the Department hostage because only it can operate the system. Even then, “too big to fail” is never really an issue because the government can always arrange for a new contract—just like we are doing now in advance of the expiration of our current loan servicing contracts.

While selecting a vendor to develop the technology that drives the new system is an important step forward, it’s not the end of the road. This is the first step towards creating a new system with an improved tech platform and multiple customer service vendors providing state of the art borrower engagement under single Department of Education branding.

As I mentioned, there will be more opportunities for additional vendors in the new ecosystem. No single vendor will be responsible for every aspect of student loan servicing – but the new experience will be seamless to the borrowers. In the future, FSA will be seeking additional vendors to provide direct customer service to borrowers.

Finally, while we’re eager to realize our vision for a new student loan servicing system, we’re also committed to taking the time to get it right. Selecting the right initial vendor to build the high-quality quality platform, identifying additional vendors to provide customer service, and transferring loans into the new system will all take time. In the meantime, we will continue to work with our current servicers to provide the best possible experience for borrowers under the existing system.

Staff Update: Earlier this afternoon, U.S. Education Secretary John B. King Jr. sent the Federal Student Aid Chief Executive Officer a memo entitled “Consideration of Past Performance in Student Loan Servicing Recompete,” which you can view here.

Ted Mitchell is U.S. Under Secretary of Education.