Education Department to Implement Improved Customer Service and Enhanced Protections for Student Loan Borrowers

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As part of a continued effort to implement a new vision for student loan servicing that ensures the more than 40 million Americans with student loan debt get high-quality customer service and fair treatment as they repay their loans, the U.S. Department of Education today outlined a series of enhanced protections and customer service standards that will guide the future of federal student loan servicing practices. The policies were outlined in a memorandum from U.S. Under Secretary of Education Ted Mitchell to Federal Student Aid (FSA), which will implement the policy directives to strengthen student loan servicing during the ongoing procurement process. These policies were developed in consultation with the U.S. Department of the Treasury (Treasury) and the Consumer Financial Protection Bureau (CFPB).

"Today's policy directive is a big win for tens of millions of borrowers," said U.S. Secretary of Education John B. King Jr. "It will help ensure that student loan borrowers get the service they deserve." While the majority of federal student loan borrowers continue to successfully repay their student loans, there are still too many borrowers who are struggling, or who may be at risk of defaulting on their loans. Since taking office, President Obama and his Administration have worked hard to keep college affordable and help student loan borrowers manage their debt. In March 2015, as part of that effort, the President unveiled a Student Aid Bill of Rights directing federal agencies to work together on a series of actions to help borrowers manage their student debt.

Last fall, the Departments of Education and Treasury, and the CFPB issued joint principles on student loan servicing calling for new standards to protect borrowers and reduce defaults. Earlier this year, the Department of Education laid out a vision of world-class service for borrowers and challenged the industry to compete to fulfill that vision and ensure all borrowers are getting the customer service they deserve.

"This guidance has the power to strengthen our student loan financing system by providing long-overdue improvements to servicing," said Treasury Deputy Secretary Sarah Bloom Raskin. "I commend the Department of Education on this effort and urge Federal Student Aid to move forward aggressively with implementation."

Today's action also builds on the President's Executive Order directing agencies to focus on pro-competition executive actions that empower and inform consumers, workers and entrepreneurs.

"Today's announcement is an important milestone in our work to reform the student loan servicing market," said CFPB Director Rich Cordray. "These servicing standards can help to increase accountability and improve the quality of information borrowers receive about their loans and the affordable repayment plans they are entitled to by law. We will continue working to stamp out illegal practices and look forward to the implementation of these critical protections that all student loan borrowers deserve."

The memo released today expands on the agencies' joint principles and efforts to identify and incorporate student loan best practices. This joint endeavor will drive the Department's ongoing contracting process to select new vendors to implement its vision for a new loan servicing system. It gives direction in five specific areas:

  1. Economic Incentives: Economic incentives play a critical role in how well a servicing system serves borrowers. The memo directs FSA to include incentives that encourage servicers to help borrowers stay on top of their loans and avoid default while avoiding fixed-fee structures that create a disincentive to help struggling borrowers.
  2. Accurate and Actionable Information: Student loan borrowers depend on servicers to provide basic accurate information about account features, borrower protections, and loan terms. The memo directs key improvements to oral and written communications with borrowers – especially those borrowers who are at the highest risk of default.
  3. Consistency: Borrowers should receive adequate, timely, and consistent communications. The memo directs FSA to use only U.S. Department of Education-branded communications and to create web pages and printed materials that have the same look and feel to eliminate confusion for borrowers. It also sets forth a common set of servicing practices designed to assist borrowers in managing their student loans.
  4. Accountability: Borrowers must be able to expect a high level of accountability in their federal student loan servicing experience including quick responses to inquiries and complaints, and transparent resolutions when problems occur. The memo directs FSA to step up monitoring of servicing vendors and to integrate complaint resolution into the oversight of those vendors.
  5. Transparency: The memo details the expectation for better federal student loan data transparency and publicly available information on the tracking and reporting of requests for assistance, escalations, and appeals to improve accountability for loan servicing performance.

Ultimately, the new loan servicing system will make it easier for borrowers to manage and repay their loans. This will mean that any borrower can log into a single web portal 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.

The Department also continues to work closely with federal and state law enforcement partners to ensure that student loan servicers are playing by the rules. Additionally, the Department is enhancing its own oversight of financial institutions and exploring additional ways to ensure borrowers can protect themselves against improper practices.

Today's memo builds on the Department's previous work with Treasury and the CFPB, as well as experts and stakeholders to improve loan servicing. Those actions include:

  • Reforming the Total and Permanent Disability Discharge Process. We have taken steps to identify and protect federal student loan borrowers who may be eligible to have their loans forgiven under the Total and Permanent Disability loan discharge program.
  • Completing a pilot program to explore innovative approaches to assisting delinquent borrowers. Last December, we announced the results of a pilot program intended to reach and provide assistance to seriously delinquent borrowers.
  • Expanding publicly-available data about student loans in default. In June, we also published new quarterly data updates on Private Collection Agency performance and implemented a new set of student loan statement disclosures to provide clear and direct information to borrowers.

Launching an FSA Feedback System for borrowers with complaints about student loans or institutions of higher education. On July 1, we launched the FSA Feedback System, an online portal that allows federal student aid customers to submit complaints, report allegations of suspicious activity and provide feedback regarding their experience with federal student aid programs.