The Department of Education (ED) Office of Federal Student Aid (FSA), which oversees the government’s huge student loan portfolio, is launching stricter standards for student loan services in a bid to bolster The surveillance.
“The FSA is raising the bar for the level of service that student loan borrowers will receive,” FSA chief operating officer Richard Cordray said in a statement.
While payments are expected to resume on Jan.31, 2022, the agency’s measures – which follow recent news of a new enforcement office it is putting in place – “come at a critical time,” added Cordray, and “allows us to ensure that loan managers meet the highest standards or suffer the consequences.” “
“Revolution in service”
The FSA, which manages more than $ 1 trillion in federal student loans, has a long way to go as the payment hiatus looms in early 2022. More than 16 million borrowers need a new loan service, and the stakes for machines to operate efficiently are high.
The standards introduced on Friday address some of the main concerns many advocates have had in the past: the performance of loan managers, the introduction of greater transparency, as well as increased accountability measures for the six companies. student loan services that are part of the system. .
The companies affected by the news are Great Lakes, HESC / Edfinancial, MOHELA, Navient, Nelnet and OSLA Servicing. FSA has extended its contracts for two years.
FedLoan Servicing (PHEAA) and Granite State, which are no longer in the service game, will have their accounts transferred to the other six. Navient is in the process of transferring his contract to Maximus, another repairman.
The standards will come into effect early next year.
“It’s a revolution in service,” said Cordray, who was previously director of the Consumer Financial Protection Bureau under President Barack Obama, in an exclusive interview with Yahoo Finance on Friday.
“Until now, repairers (…) had a general role, and they sort of carried it out as they wished,” he said. “We decided that we need to make sure they understand our goals and that means putting borrowers first… and I think that reflects a major change in the program. We’ll see how that works over time. have to do it. refine it, we will. “
Performance standards come with penalties and rewards
All of the repairers’ contracts were scheduled to expire at the end of the year and were extended for two years after FSA negotiated new terms – which involved two months of back and forth, Cordray said. He further acknowledged that the new conditions may have been factored into the exit decisions of PHEAA and Granite State.
The new terms give the FSA an increased ability to monitor and resolve service issues as they arise, require compliance with federal, state, and local laws relating to loan servicing, and introduce carrot and the stick in the process for loan services.
This means that if a repairman malfunctions, FSA can withhold new loans and the associated income. If they do well, they will get more loan volume.
“Student loan managers will now have strong financial incentives to provide quality service to their clients,” ED’s press release said.
Servers will be measured quarterly by the following:
Percentage of borrowers who end a call before reaching a customer service representative by phone;
How well do customer service representatives answer borrowers’ questions and help them navigate repayment options?
Whether providers process borrower requests accurately the first time;
And the overall level of customer service provided to borrowers.
The FSA is also demanding that maintenance departments increase the opening hours of call centers and increase the number of workers who speak Spanish.
“The percentage of new borrower accounts, which represents the income you are going to get, will be related to your score,” a senior FSA official told Yahoo Finance. The agency wants “to have something to which real responsibility attaches … real rewards for providing this borrowing experience, and real penalties for not doing so”.
The new contracts also bring more transparency to the system, requiring loan departments to provide comprehensive reports on borrower experiences, such as the time it takes for a department to process an application, declined applications, and complaints most often registered by borrowers. .
Under the new contract conditions, the FSA can also publish performance data of service providers.
“These new contracts send a clear message: the days when student loan officers got away with abusive behavior and appalling customer service are over,” US Senator Elizabeth Warren said in a statement to Yahoo Finance. “I look forward to working with Secretary Cardona and Richard Cordray to hold repairers accountable.
Concerns about FSA staff
With two new initiatives in two weeks, the question arises as to whether the FSA has enough hot bodies to execute some of its plans.
According to a recent report by the Government Accountability Office in August, as the volume of direct loans from the FSA increased by around 450% and the number of borrowers it deals with increased by almost 150% from 2010 to 2019, its staff only increased by 6%.
Cordray acknowledged the staff shortage and said he was working with the Office of Management and Budget (OMB) on this issue.
“The announcement of the Enforcement Office… will involve staffing, and we are currently trying to follow the budget process with OMB and others to make sure they fully understand the need for this and why it is. is important, ”Cordray says. “We’re trying to work out some of the details of this.”
Read the latest financial and business news from Yahoo Finance
Follow Yahoo Finance on Twitter, Instagram, Youtube, Facebook, Flipboard, and LinkedIn