Biden-Harris Administration Announces Framework for Student Loan Servicer Accountability To Protect Borrowers Nationwide

The Biden-Harris Administration is fully committed to supporting student loan borrowers as they navigate return to repayment and fixing problems in the student loan system. To further the goal of protecting borrowers nationwide, the Biden-Harris Administration is taking steps to hold student loan servicers accountable for meeting their obligations to students, borrowers, and taxpayers when managing student loans. Today, the U.S. Department of Education (Department) is outlining a framework for how it will increase student loan servicer accountability and make sure borrowers are not harmed by servicer errors.

The framework’s strategies help the Department to encourage servicers to better support borrowers and allows the Department to hold their feet to the fire when they have servicing failures.

“The Biden-Harris Administration has made clear that we will not allow borrowers to pay the price for unacceptable servicing failures,” said U.S. Secretary of Education Miguel Cardona. “Today’s announcement should send a clear message to all our contracted student loan servicers that the Department will use the full scope of our oversight and accountability tools to ensure borrowers get the level of service they deserve. As the Biden-Harris team works to fix our country’s broken student loan system, we will continue to put the needs of borrowers first and do whatever it takes to support Americans’ success as they return to repayment.”

“The loan servicing environment has changed drastically since the Department began working with multiple servicers in 2009,” said Federal Student Aid (FSA) Chief Operating Officer Richard Cordray. “FSA is committed to ensuring servicing contracts evolve to meet borrowers’ needs. The return to repayment is an unprecedented time in the Direct Loan program, and in 2024, we will transition to new contracts that provide us with updated requirements for servicers and more ways to ensure borrowers get the support they deserve.”

Framework for Student Loan Servicer Oversight and Accountability to Protect Borrowers

Under this Administration, the Department has implemented an oversight strategy of federal student loan servicers that provides several pathways for identifying in real time problems that can harm borrowers. The Department’s oversight specifically focused on the borrower experience includes monitoring servicers, tracking complaints, and examining results-based outcomes. These oversight and accountability tools are used in combination to ensure a comprehensive review of servicer performance. The Department takes several steps to monitor servicers across different channels and uses its enforcement tools when necessary.

Servicer Oversight – Monitoring

The Department’s stringent monitoring work has detected servicer errors that occurred and has allowed the Department to quickly address any challenges facing borrowers. Leading up to the return to repayment, the Department instituted several of the strategies outlined below including secret shopper campaigns and enhanced data monitoring so that errors could be detected swiftly and corrective action taken. The regular monitoring of our loan servicers ensures they are providing quality customer service and are accurately processing borrower payments and applications. The Department takes a risk-based approach to overseeing loan servicers by leveraging borrower complaints, customer satisfaction surveys, interagency referrals, data monitoring, random sampling and servicer self-reporting.

The Department is deploying the following strategies to strengthen servicer oversight and monitoring:

• Direct servicer monitoring: Under this approach, FSA staff monitor the quality of customer service provided by loan servicers. FSA listens to and scores servicers’ customer service representatives interacting with borrowers, reviews borrower calls, reviews customer chats and conducts secret shopper calls to measure the accuracy of servicers’ responses to borrowers’ questions. FSA staff also conducts secret shopper campaigns on broad return to repayment issues as well as specialty servicing issues such as questions on Public Service Loan Forgiveness.
• Partnering with federal and state regulators: The Department cooperates with other government agencies, such as the Consumer Financial Protection Bureau (CFPB) and state attorneys general, which are tasked with enforcing consumer financial laws. The Department took steps earlier this year to update its interpretation of federal preemption to clarify states’ authority to enforce state consumer protection laws to facilitate close coordination between the Department and its state partners. Such close coordination and cooperation further nhance both servicer accountability and borrower protections.
• Leveraging borrower complaints: This includes complaints filed through FSA’s Office of the Ombudsman, which works closely with the oversight team to determine if complaints are part of a larger servicer issue. The Department also conducts regular monitoring of social media and news stories to track what borrowers are reporting to see whether these complaints are isolated instances or an error that is impacting a broader subset of borrowers. These listening tools are a crucial part of the monitoring process as borrowers are best able to report the issues that may be directly impacting their repayment.

Servicer Accountability – Actions

When the Department detects performance issues that do not meet our standards, it has the ability to take actions against servicers. The Biden-Harris Administration will continue to use the following tools to protect borrowers from poor servicer conduct:

• Withholding Payment: When servicers do not meet their contractual obligations or are not meeting acceptable standards, the Department has the authority to withhold payments based on the number of borrowers who are not being served.
• On October 30, 2023, the Department announced it was withholding $7.2 million from MOHELA for its failure to send timely billing statements to 2.5 million borrowers.
• Suspending or Re-allocating Borrowers: If servicers show they are unable to perform their duties for the borrowers they manage, the Department can suspend the allocation of additional borrowers, or re-allocate borrowers to other servicers. The Department also has the authority to allocate new loans to high-performing servicers. Withholding accounts has direct financial impacts on servicers, because their compensation is largely driven by monthly fees for each borrower they service. Therefore, fewer accounts lead to lower payments moving forward.
• Contractor Performance Reports (CPARS): The Department creates summary reports for each servicer that use the government-wide grading system regarding various aspects of the servicer’s work. CPARS are used as a factor when servicers are competing for new contracts, so poor CPARS scores could result in a loss of future revenue.
• Corrective Action Plan (CAP): The Department requires servicers to fix servicing errors through remediation plans. The Department requires a servicer to submit a plan to ensure that borrowers are made whole and that proper controls are put in place to ensure the problem does not happen again.

Helping borrowers harmed by servicer issues

In addition to detecting servicer issues and taking action to address them, the Department also has a strategy to protect borrowers from servicer mistakes. When certain types of errors are detected, the Department directs servicers to place affected borrowers into a short administrative forbearance while the errors are resolved. In certain circumstances where a borrower’s progress toward loan forgiveness may be harmed by potential servicer errors, the Department has directed servicers to count those periods in administrative forbearance toward Public Service Loan Forgiveness and income-driven repayment forgiveness and adjust accrued interest to zero.

Moving toward a modern servicing system – Unified Servicing and Data Solution (USDS)

The Department will enhance its ability to reward servicers for positive results and hold servicers accountable for poor performance through the transition to the USDS.

The Department previously announced it will transition to the new loan servicing environment in spring 2024, which will provide the strengthened security, accountability, and transparency provisions that current legacy contracts do not. USDS will allow the Department to create a loan servicing environment that better serves borrowers and increase oversight ability for the more than 37 million borrowers with federally managed student loans, more than 28 million of whom have returned to repayment.

The USDS contract brings several benefits related to servicer accountability. USDS will allow a stronger focus on performance improvement by financially rewarding servicers that keep at-risk borrowers in a current repayment status. These incentives will drive servicers to further invest in innovative strategies to reach borrowers at risk of delinquency and default.

USDS will also provide increased cost transparency and allow the Department to better track servicer performance and incentivize servicers to meet Department standards.

The Department takes very seriously its responsibility to oversee servicers and ensure borrowers have a smooth and successful repayment experience. The Department will continue to monitor performance, communicate with servicers and borrowers, and take corrective action where needed. The oversight and accountability mechanisms outlined show the Department’s clear commitment to a better student loan system that prioritizes borrower success and a repayment system that puts borrowers first.