Today, the U.S. Department of Education’s (Department’s) office of Federal Student Aid (FSA) announced it has signed contracts with five companies to modernize and enhance loan servicing for more than 37 million borrowers with federally managed loans. Central Research, Inc.; EdFinancial Services; Maximus Education, LLC; Missouri Higher Education Loan Authority (MOHELA); and Nelnet Diversified Solutions received contracts today through the Unified Servicing and Data Solution (USDS) solicitation and will implement much-needed improvements to better serve borrowers. This new loan servicing environment is part of the Biden-Harris Administration’s sweeping efforts to improve the student loan repayment system and help all borrowers successfully manage their debt.
These awards are the first step toward implementing the Department’s new servicing environment next year, which will be FSA’s long-term loan servicing solution. The new environment is designed to provide federal student loan borrowers with a high-quality customer experience and to deliver support for at-risk borrowers so that all borrowers can take advantage of the most affordable ways to repay their loans, avoid default, and claim loan forgiveness, if they are eligible for it. Vendor accountability is a central goal of the new servicing contracts, which provide rewards for better customer outcomes and impose consequences for failing to meet expectations. For example, servicers that keep vulnerable borrowers current on their payments will receive a financial performance incentive, and FSA will allocate new accounts to servicers that have proven they are able to keep borrowers current. Likewise, servicers that provide unsatisfactory or untimely service will face financial disincentives.
“The Biden-Harris Administration is fixing broken programs like Public Service Loan Forgiveness and writing the most affordable repayment plan ever, and the Department of Education is working tirelessly to implement these policies and maximize benefits for borrowers,” said Under Secretary James Kvaal. “The contracts awarded today will combine more investment and more accountability to deliver higher levels of service to 37 million borrowers with federally managed loans, help them claim student loan benefits they have earned, and reduce the number of borrowers who fall into delinquency and default.”
Since day one, the Biden-Harris Administration has taken a comprehensive approach to fixing the broken student loan system and increasing college affordability for every student. Under President Biden and Vice President Harris, the Department has completely revitalized targeted debt relief programs like Public Service Loan Forgiveness, Borrower Defense, and Total and Permanent Disability Discharge, approving $55 billion in discharges for more than two million borrowers to date. Additionally, the Department continues to implement and enforce strong consumer protections for higher education in America to ensure bad actors are held accountable for cheating students and leaving them with unaffordable debts, and it continues to propose new investments in Pell Grants and other scholarships to reduce borrowing before students step foot on a college campus.
“Building on efforts to overhaul loan servicing dating back to 2014, FSA is finally delivering on the promise to borrowers. These contracts focus on robust accountability and quality control mechanisms to make sure borrowers get the help and support they deserve,” said FSA Chief Operating Officer Richard Cordray. “FSA will work with the servicers to develop the necessary infrastructure, training, and procedures so we can implement the new loan servicing environment in 2024.”
Ultimately, the new loan servicing environment will provide all federally managed student loan borrowers with complete account management capabilities on StudentAid.gov; reduce disruptions from account transfers; and increase servicer accountability through clear, service-level metrics. Because of the scope of this work, FSA will take a phased approach to implementing the new environment. The long-term contracts awarded today will make major improvements when they go live in 2024. These include updated cybersecurity provisions and compliance with consumer protection rules as well as improved customer experience through a single sign-on using a borrower’s FSA ID, which will make it easy to navigate between servicer websites and StudentAid.gov. Over the five years of the base contract, FSA will continue to expand functionality on StudentAid.gov with the goal of transitioning full account management, branding, and repayment away from servicer websites.
The contracts awarded under the USDS solicitation will replace the legacy servicing contracts for Direct Loans and federally managed Federal Family Education Loan (FFEL) Program loans to drive improved borrower outcomes, especially for vulnerable borrowers. To maintain stability as the new loan servicing environment gets underway, FSA will extend the legacy servicer contracts through December 2024, as Congress has authorized, which will help facilitate a smooth transition for borrowers.
Awarding the contracts for the new loan servicing environment is the culmination of nearly a decade of work to overhaul federal student loan servicing. Over the past five years, the Department has laid the groundwork for the new environment to deliver a high-quality customer experience through FSA’s Next Gen initiative. This initiative had its first major launch in December 2019 by consolidating multiple websites for students, parents, and borrowers into StudentAid.gov. Since then, FSA has launched and enhanced many of its resources, including the Aidan® virtual assistant, Loan Simulator, the Public Service Loan Forgiveness (PSLF) Help Tool, and more, which help borrowers more easily navigate different parts of the student aid journey, from managing their federal student loans to applying for the PSLF Program. FSA awarded the Business Process Operations (BPO) contracts to support customers and partners across all FSA programs and operations via contact centers and manual processing. Through the new servicing environment, FSA is leveraging these investments to deliver the next generation of loan servicing.
The President’s Budget seeks $2.7 billion for Student Aid Administration, including to FSA, a $620 million increase over the fiscal year 2023 enacted level. This additional funding is essential to support students and student loan borrowers. The increase would allow FSA to continue to operate the student aid programs, implement critical improvements to student loan servicing, continue to modernize its digital infrastructure, and ensure successful administration of the financial aid programs through a simplified and streamlined application process for students and borrowers.