The new contract terms will start early next year in connection with student loan payments resuming in January.
10/20/2021 8:00
Six student loan servicers working on federal student loans with the U.S. Department of Education (DOE) have agreed to new contract terms that will be in place until December 2023.
“The new contract terms give the department’s Federal Student Aid office (FSA) greater ability to monitor and address servicing issues as they arise; require compliance with federal, state, and local laws relating to loan servicing; and hold servicers accountable for their performance, including withholding new loans and associated revenue for poor performance,” according to the announcement from the DOE. “These changes will be critical as FSA works with student loan servicers to implement the Biden-Harris Administration’s commitment to reform student loan servicing and ensure a smooth transition for borrowers out of the student loan pause ending on Jan. 31, 2022.”
Great Lakes, HESC/Edfinancial, MOHELA, Navient, Nelnet, and OSLA Servicing agreed to the contract extension.
In September, Navient announced that it has agreed to transfer its servicing contract to student loan company Maximus, ending its participation in the federal student loan servicing program, ACA International previously reported. The DOE has approved Navient’s account transfer, according to a press release today from Navient.
The Consolidated Appropriations Act 2021 gives FSA the authority to extend the contracts with the loan servicers for up to two more years, according to the DOE.
“FSA is raising the bar for the level of service student loan borrowers will receive,” said FSA Chief Operating Officer Richard Cordray. “Our actions come at a critical time as we help borrowers prepare for loan payments to resume early next year. The great work done by our negotiating team here enables us to ensure that loan servicers meet the tougher standards or face consequences.”
The contracts for two current companies, the Pennsylvania Higher Education Assistance Agency (PHEAA) and Granite State Management, will not continue. Earlier this year, those companies announced their plans to stop servicing federal student loans and those accounts will be transferred to the remaining federal contractors, ACA previously reported.
Federal student loan payments are currently on hold though January 2022 because of the COVID-19 pandemic.
The coinciding contract extensions also include new performance standards from FSA in addition to existing measures tied to servicers’ efforts to keep borrowers from falling behind on their payments.
According to the DOE announcement, FSA will measure loan servicers each quarter on their ability to meet established goals related to:
- The percentage of borrowers who end a call before reaching a customer service representative by phone.
- How well customer service representatives answer borrowers’ questions and help them navigate repayment options.
- Whether servicers process borrowers’ requests accurately the first time.
- The overall level of customer service provided to borrowers.
FSA will limit new loans assigned to services that do not meet these standards on a consistent basis and there will be rewards for helping borrowers avoid falling behind on their payments, according to the DOE.
When the new contract terms go into effect, FSA will also require servicers to maintain core call center hours, including Saturdays, and for loan servicers to increase the number of Spanish-speaking customer service representatives.
Plans to Reshape the Future of Student Loan Servicing
These extensions and new contract terms are only one element of the Biden administration’s longer-term effort to improve federal student loan servicing. The changes reflected in the new contract terms will complement short-term changes being made to servicers’ requirements for borrowers’ transitions back into repayment on Feb. 1, 2022.
Throughout the next year, FSA will take additional steps to implement a broader vision focused on ensuring borrowers have easy access to the clear, accurate and timely information they need to manage their federal student loans. In addition to building on enhancements to FSA’s digital platform—including StudentAid.gov and the myStudentAid mobile app—the Department will work on a permanent contracting approach to cement greater stability, servicer transparency, accountability and performance beyond the two-year period authorized by Congress.
ACA members working with student loan borrowers or other consumers with questions can share recent guidance from the Consumer Financial Protection Bureau about the process to resume payments and if their loan is transferred to a new servicer, ACA previously reported.
FSA also offers tips on loan transfers here.
Related content from ACA International:
Big Waves Coming When Student Loan Payments Resume
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