The Department of Education is planning to increase its oversight of six loan servicing companies, beginning next year, by including stronger standards for performance, transparency and accountability in the servicers’ contract extensions.
The new contract terms will allow the Office of Federal Student Aid to better monitor and address servicing issues as they arise, as well as hold servicers accountable for their performance, the department said Friday.
“Our actions come at a critical time as we help borrowers prepare for loan payments to resume early next year,” said Richard Cordray, chief operating officer of FSA, in a statement. “The great work done by our negotiating team here enables us to ensure that loan servicers meet the tougher standards or face consequences.”
The higher standards will apply to Great Lakes Educational Loan Services Inc., HESC/EdFinancial, MOHELA, Nelnet, OSLA Servicing and Navient, though Navient recently requested to transfer its contract to Maximus.
FSA will start measuring loan servicers each quarter on how they manage customer service by monitoring caller wait times, their accuracy in processing borrower requests and how well they answer borrower questions. For servicers who fail to meet the performance standards, FSA may reduce the number of new student loan borrowers assigned to them or may deny them new loans.
The department said servicers will now have “strong financial incentives” to provide quality service to borrowers but didn’t outline what those incentives will be.
As a part of the new contract terms, all servicers will be required to comply with federal, state and local laws regarding loan servicing and are expressly prohibited from shielding themselves from lawsuits brought against them.
FSA will also start requiring servicers to submit comprehensive reports that describe why borrowers contact their servicer, how long it takes for servicers to process loan-related applications, which borrower applications are denied and the complaints that borrowers log directly with servicers. FSA will have the authority to publicly release this performance data.
This is the first step in improving the future of loan servicing, according to the department. FSA will continue making changes to loan servicing throughout the next year.