Promote Excellence in Servicing
Ensure Fair and Equitable Treatment for All Direct Loan (DL) Servicers
EFC member organizations have invested a great deal of time, money, and resources into providing exemplary service to borrowers and the Education Department. EFC encourages the Department to continue to embrace the new Direct Loan servicing allocation methodology of allocating new student loan accounts using common performance metrics across all DL servicers.
Recommendation: EFC recommends a continuation of the current servicing allocation methodology and encourages the Department to hold an open and fair bid process for future servicing solicitations that recognizes the value and expertise of the not-for-profit (NFP) DL servicers.
Allow All Direct Loan Servicers to Service Consolidation Loans
Currently, borrowers who choose to consolidate their Federal Direct Student Loans are limited in their choice of servicer to the four TIVA servicers. As a result, when a borrower who is working with one of the five not-for-profit servicers consolidates their loans, the servicing must be transferred to one of the four TIVA servicers. If a borrower is proactively engaging with their servicer and consolidating their loan, they should not be forced out of that existing, positive relationship. Allowing borrowers to choose the servicer that works best for their individual needs would decrease the overall anxiety of the repayment process and foster positive, standing relationships between borrowers and servicers.
Recommendation: EFC recommends that borrowers be allowed to remain with their not-for-profit servicer when consolidating their loans so that they do not need to transition to a new servicer at this crucial point in the repayment process.
Ensure a Competitive Servicing Landscape
EFC recommends that Congress direct the Education Department, as it works to improve the Direct Loan servicing system, to ensure the continued inclusion of multiple servicers handling all aspects of servicing loans. Such a marketplace will foster a competitive environment and ensure that borrowers and the Department have the leverage necessary to make sure servicers work in the best interest of borrowers while continuously working to improve their service and outcomes.
Recommendation: EFC strongly recommends that the Department create and manage a competitive servicing environment that holds servicers accountable for their ability to best serve the needs of student loan borrowers.
Reinstitute a Common Operations Manual
To address concerns about consistency of service across multiple servicers, EFC recommends that Congress direct the Education Department to reinstitute a highly prescribed and continuously updated Common Operations Manual. This will ensure consistent performance and accountability across all servicers. A Common Operations Manual was very successful in ensuring consistency under the FFELP program where there were multiple lenders, multiple origination and servicing platforms, and multiple servicers. It should be equally successful with one lender, four servicing platforms, and multiple servicers.
A Common Operations Manual for Direct Loan servicers has been recommended to the Department in the past, but has never been implemented. Allowing for multiple servicers, who all adhere to a common set of operational requirements, will maintain a competitive environment while allowing servicers the flexibility to develop best practices and to continuously innovate to better serve borrowers and taxpayers.
Recommendation: EFC strongly endorses Congress’ prior recommendation — one that servicers support — that the Department create a Common Loan Servicing Operations Manual to drive high-quality servicing for all borrowers and ensure consistency and accountability across all servicers.
Small Business Designation for Not-For-Profits
EFC urges Congress to continue to have not-for-profit servicers — who have a proven track record of excellent service — designated as small businesses for the purposes of any prime and subcontracting contracts.
In its explanatory statement accompanying the Consolidated Appropriations Act, 2017, the Committee directed the Education Department to “… develop and submit to the Committees on Appropriations of the House of Representatives and the Senate a plan under which it will give credit for subcontracting with small business, including State-based nonprofit organizations with expertise in assisting borrowers in the repayment of their student loans that provide value-added services but do not meet the formal definition of a ‘small business’ because they are state or nonprofit entities.”
Recommendation: EFC recommends that existing and future federal student loan servicing contracts receive credit toward the small business requirement if they subcontract state-based nonprofit organizations with expertise in assisting borrowers in the repayment of their student loans.