“reforming Student Loan Servicing: Improving Borrower Experience” – This strategic overview is based on research sponsored by Arnold Ventures. The views expressed in this report are solely those of the author and do not necessarily represent the views of the funders.
In May 2022, about 43 million student loan borrowers in the United States are slated to resume paying nearly $1.6 trillion in outstanding student loan debt after a nearly two-year hiatus, according to this plague. This release is set to expire amid much pressure on borrowers’ burdens and the administration of the entire student loan program. At the center of the resume are student loan servicers, a much-maligned — but also largely misunderstood — group of companies that handle many of the key tasks related to student loan repayment, including management. account management, payment processing, and information provision. on repayment plans and solutions for distressed borrowers.
“reforming Student Loan Servicing: Improving Borrower Experience”
There are serious concerns about the challenges that repayment will pose to student borrowers, many of whom have experienced financial and health problems, exacerbated by the exit of several well-known firms student loan servicer in recent months.
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However, concerns about staffing practices and performance existed long before the restoration began to emerge. For example, high-profile lawsuits have been brought against many loan servicers, including by the Consumer Financial Protection Bureau (CFPB) and federal attorneys general, alleging a range of unfair, abusive and deceptive – such as providing false information, charging false fees, hindering enrollment in certain types of payment plans, and not responding to borrower requests.
In addition to lawsuits, consumer complaints about student loan servicing have been highlighted in media reports and have been the focus of DRM oversight.
Such dissatisfaction with the political climate has led to widespread calls for reform of student loan servicing, a complex task given the potentially competing goals of lenders, taxpayers, program administrators and interests. of the country. There are no easy fixes—and reforms will be limited if they are not combined with a focus on fixing our higher education funding system. In this report, I focus on three design principles that should be considered when changing the way student loan services are delivered:
Lenders have a unique relationship with their servicers once they start paying off their student loans after graduating, dropping out of college, or dropping out of enrollment. Officers maintain borrowers’ accounts, collect payments from borrowers, and process applications for deferments, forbearances, and forgiveness. They are also expected to serve as an information tool to help borrowers find complex payment methods and solutions to debt repayment problems. However, despite this important role that servicers play in paying borrowers and education, borrowers have no choice in how the company will service their loan. It is no exaggeration to describe student loan servicing as one of the most critical aspects of the student loan system in the United States, but an area that few people understand and many distrust.
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The modern operation of the service market began about ten years ago, and generally relies on the US Department of Education (the Department) providing services to private companies, including for-profit and non-profit organizations.
Over the past decade, the service market has changed dramatically, including anywhere from four to five for-profit servicers (sometimes called “TIVAS” or Title IV Additional Servicers) and five to eleven non-profit employees depending on the year. . Figure 1 shows loan dollars outstanding for the largest student loan servicers, with nonprofits combined.
“Today’s credit service environment does not require a lot of accountability. Legacy service contracts do not have enough incentives to reward employees for successfully managing borrower accounts, and they do not allow the results appropriate measures should be applied to loan officers who fail to meet the requirements of the contract.”
In the context of student loans, accountability is a challenge and solutions to improve outcomes are difficult to develop and implement because actions and responsibilities are distributed among many parties, enabling any single actor to avoid guilt. The federal student loan system in the United States is multi-faceted and multi-player. Each player works within their own constraints, based on specific recommendations that may not serve the greater goal of promoting access and success in higher education. And these actors face little administrative control to assess how their behavior affirms or undermines that of others. Because student lenders interact with a set of separately regulated and motivated actors in college admissions and repayment, they experience burdens at each stage that can accumulate and spread, creating problems that can lead to inequity. in the community and lowering the goals of growing the economy of the community. movement.
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Employees have become a source of dissatisfaction with student loans in general and educational institutions. There is no doubt that employees must be held accountable for abusive and fraudulent practices, and the Department must enforce better service practices and greater oversight in the future. However, much of the dissatisfaction with student loan servicing stems from a general lack of interest in the federal student loan system, and more so the current financial aid system. and prices in the United States. Complaints about employees at the CFPB reflect some of this shifting of blame.
For example, mortgage interest rates are set by Congress, yet lenders often blame employees for these provisions.
The federal student loan system in the United States is multi-faceted and multi-player. Each player works within their own constraints, based on specific recommendations that may not serve the greater goal of promoting access and success in higher education.
Over the years, I’ve struggled to pay off my student loans when the interest rates keep me from doing so… The interest rates are criminal – and the company is making money off the backs of students trying to get an education. to improve their lives… My disgust for this company and the federal government allowing a loan servicer to take advantage of students is growing. The debt is crippling…Something has to be done – these companies need to be held accountable – even if it means their CEOs have to spend their luxury vacations on the backs of hardworking people.”
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Borrowers are often impressed with the quality of the education they received from the institution of higher learning, but they often respond with criticism from the staff. For example, in a complaint that they “received bad information about their credit,” the borrower says:
“I feel like I didn’t learn anything at this college except spend a lot of money and get nothing back. I was stuck. [The employer] is trying to get me to pay off the school loan that was closed. it’s a scam. They were shut down by the government…Many employers get their license laughed at. And you won’t accept them or look at you. I went to college there…because they told you about it is false that you can receive letters at this time.”
These, along with the many related complaints filed in the CFPB’s database, are valid complaints that deserve attention and resolution. But, without ignoring the negative actions of employees, it is instructive to realize that employees are often blamed for things that are out of their control, such as loan conditions and interest rates, or the quality and value of education. accepted.
In an effort to transform student loan services, the Department announced the Next Gen Federal Student Aid initiative in late 2017, with the goal of improving how students and their families interact with the federal student aid system. A prominent part of the plan is to change practices, contracts and employee relations, with their first set of contracts announced in June 2020. In October 2021, the Department announced new, stronger standards , offering services along with a two-year contract extension. for six employees, including new performance standards such as whether agents answer questions and requirements that service employees respond to complaints in a timely manner. But the road to change has been slow and fraught with legal and regulatory challenges, including changes in priorities following the transition from the Obama to Trump Administration, dozens of canceled applications, and lawsuits from federal agencies. private collection and existing staff. As a result, it remains difficult to clarify the policies and timing of student loan service reform.
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Such uncertainty has led to major changes in the student loan servicing market. One of the largest service providers, the Pennsylvania Higher Education Assistance Agency (PHEAA), which serves more than eight million people, announced in July 2021 that it was going out of business. of providing student loans. PHEAA also operates FedLoan Servicing, the primary administrator of the much-maligned Public Service Loan Forgiveness (PSLF) program. Under PSLF, borrowers can have their loans forgiven after up to ten years if they work for a qualified public service employer and meet other requirements. However, the program has faced a flood of complaints from borrowers about confusing guidelines, misinformation, and improper denials, leading to congressional inquiries, lawsuits, and audits. government.
PHEAA’s announcement was followed weeks later by another major servicer, Granite State Management & Resources, announcing that it would also suspend its public student loan service for its about one million.
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