On Friday, the Department of Education’s Federal Student Aid workplace introduced a stricter set of requirements for student loan servicers, the businesses the federal government pays to supervise the billing and assortment of student loan funds.
“FSA is raising the bar for the level of service student loan borrowers will receive,” mentioned FSA Chief Operating Officer Richard Cordray in an announcement. “Our actions come at a critical time as we help borrowers prepare for loan payments to resume early next year. The great work done by our negotiating team here enables us to ensure that loan servicers meet the tougher standards or face consequences.”
In the previous, servicers have been accused of harassing debtors, deceptive debtors about their choices, mismanaging the general public service loan forgiveness program and poor customer support.
The new modifications are meant to “ensure a smooth transition for borrowers out of the student loan pause ending on Jan. 31, 2022” and likewise come throughout a big re-shuffling amongst servicers.
By the tip of the 12 months, practically 10 million debtors could have their student loans switched from one servicer to a different. Millions extra may face the identical destiny over the following a number of years.
“In a perfect world, these transitions would be seamless to the borrower, but it may not be,” says Kevin Walker, writer of CollegeFinance.com. “And so borrowers have to pay attention to make sure that, for no fault of their own, they don’t miss payments.”
On July 8., The Pennsylvania Higher Education Assistance Agency (sometimes called FedLoan) introduced that it might not renew its contract with the federal authorities. FedLoan oversees the loans of 8.5 million student debtors, which have been or shall be transferred to a distinct servicer by the tip of the 12 months.
Jason DiLorenzo, founder and CEO of PSLFJobs, an employer guide and jobs platform, says the announcement is “good news.”
“FedLoan has been a notoriously error-filled experience for a lot of people: bad customer service and errors made regularly,” he tells CNBC Make It. “The folks that we talked to at FedLoan are committed to making [the transition] happen smoothly. But they’re the ones leaving, so I’m more worried about them doing it right than I am the new servicers taking over.”
Less than two weeks after FedLoan’s announcement, one other student loan servicer, Granite State Management & Resources, additionally introduced that it might not prolong its contract with the Department of Education when it expires Dec. 31. The servicer handles roughly 1.3 million borrower accounts that shall be transferred.
The bulletins imply some 9.8 million student loan debtors — practically 23% of the nation’s 42.9 million whole debtors — could have their loans change arms.
And hundreds of thousands extra debtors could also be in an analogous boat within the close to future.
In September, Navient, the second-largest student loan servicer within the nation, requested the Department of Education to switch the accounts of the 6 million debtors it oversees to a different servicer known as Maximus.
However, in FSA’s Friday announcement it was revealed that the Department of Education prolonged a proposal to Navient to proceed servicing loans via 2023 and is “currently reviewing” Navient’s request. If permitted, Navient’s debtors may additionally be transferred, albeit on a less-rushed timeline, which DiLorenzo says “alleviates concerns around an abrupt transfer which could result in administrative problems.”
The new servicer requirements
The FSA’s new requirements point out that within the new 12 months, federal loan servicers shall be assessed by how efficient a servicer is at conserving debtors from falling behind on their funds and throughout measures of customer support together with the share of debtors who finish a name earlier than reaching a customer support consultant by telephone and whether or not servicers course of borrower requests precisely the primary time.
“Student loan servicers will now have strong financial incentives to provide quality service to their customers,” reads the announcement, referencing contract renewals. “When the new contract terms go into effect, FSA will also require servicers to maintain core call center hours, including Saturdays, to make customer service representatives more accessible for borrowers. Further, FSA is requiring loan servicers to increase the number of Spanish-speaking customer service representatives.”
Going ahead, student loan servicer contracts will “expressly prohibit loan servicers from shielding themselves from lawsuits brought to hold the companies accountable in court for poor servicing practices.”
“There will certainly be some bumps with a big service or change like this,” says DiLorenzo. “But I think at the end of the day, people are going to be in a better situation.”