The Biden-Harris administration is strengthening its efforts to protect student loan borrowers, introducing a framework to empower the DOE to take more decisive action against servicer errors.
11/22/2023 2:10 P.M.
2 minute read
The Biden-Harris administration announced this month that it is reinforcing its plans to support student loan borrowers as they transition back into loan repayment, according to a recent press release.
The U.S. Department of Education has outlined a comprehensive framework aimed at enhancing oversight and accountability of student loan servicers to protect the interests of students, borrowers and taxpayers.
“The Biden-Harris Administration has made clear that we will not allow borrowers to pay the price for unacceptable servicing failures,” said Education Secretary Miguel Cardona.
The framework introduces strategies to encourage better support for borrowers and empowers the DOE to take decisive action against servicer errors.
The oversight strategy is focused on real-time identification of issues that could harm borrowers, according to the release. It includes direct servicer monitoring, partnerships with federal and state regulators, and leveraging borrower complaints.
Under direct servicer monitoring, the Federal Student Aid (FSA) staff actively assesses the quality of customer service provided by loan servicers. This includes listening to and scoring customer service representatives, reviewing borrower calls and chats, and conducting secret shopper campaigns.
Accountability Measures
Under the new framework, Biden-Harris administration will use various tools to protect borrowers when it detects performance issues, including:
- Withholding payments;
- Suspending or reallocating borrowers; and
- Using Contractor Performance Reports (CPARS) and Corrective Action Plans (CAP) to ensure servicers meet their obligations.
For example, the DOE withheld $7.2 million from MOHELA on Oct. 30, 2023, citing their failure to send timely billing statements to 2.5 million borrowers. The suspension or reallocation of borrowers, tied to servicer performance, can have direct financial implications for servicing entities, incentivizing them to meet acceptable standards.
In addition to monitoring and taking action against servicer issues, the DOE has implemented a strategy to protect borrowers from servicer mistakes. For certain types of errors, affected borrowers are placed into a short administrative forbearance while the issues are resolved. This includes instances where a borrower’s progress toward loan forgiveness might be hindered by potential servicer errors.
What’s Next?
The DOE will be transitioning to a Unified Servicing and Data Solution (USDS) in spring 2024. This servicing system is designed to enhance accountability, security, and transparency provisions, providing a more effective framework than current legacy contracts.
The USDS contract introduces benefits related to servicer accountability, including a focus on performance improvement and financial rewards for servicers that keep at-risk borrowers in current repayment status. The system will enhance cost transparency, allowing the DOE to track servicer performance more effectively and incentivize adherence to department standards.
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