Revamped Loan Payment System

After years of criticism from companies it hires to collect student loan payments, the Education Department plans to create a single standardized portal for borrowers to make payments.

April 5, 2016

The U.S. Department of Education plans to revamp how it collects monthly payments from millions of Americans who have federal student loans, the department will announce on Monday afternoon.

Department officials will announce their plans to change how the loan servicing companies they hire go about collecting payments from federal student loan borrowers.

Federal student loan borrowers currently make payments to one of several loan servicing firms that contract with the Education Department. The four major loan servicers are Navient, Great Lakes Educational Loan Services Inc., Nelnet and the Pennsylvania Higher Education Assistance Agency, which operates under the brand FedLoan Servicing.

Under the department’s new system, borrowers will log on to a single Education Department web portal to make loan payments instead of navigating various loan servicers’ websites. And the contracted loan servicing companies will have to use Education Department branding -- rather than their own logos -- when communicating with loan borrowers.

The goal for borrowers is to eliminate “the need to know the name of their servicer,” Under Secretary of Education Ted Mitchell said in a blog post on Monday.

The Education Department also plans to be more prescriptive about how the loan servicing companies it hires must interact with federal loan borrowers, a department official said. That includes providing more uniform, standardized information about how borrowers can enroll in government benefits like income-based repayment programs.

Mitchell said in the blog post that the “goal is to build a new state-of-the-art loan servicing system -- one that creates incentives and guidelines that support a more user-friendly single online loan management platform with high-quality, one-on-one customer service that provides the help and guidance borrowers need when they have questions or their circumstances change.”

The announcement comes after the Obama administration, which in 2010 made all federal student loans originate directly from the Education Department, has for several years faced criticism from congressional Democrats, consumer advocates and student activists for not properly overseeing the companies it hires to collect student loans.

The loan servicing companies that will participate in the new loan servicing system will be selected in the coming months through a competitive government procurement process. Companies will have until May 9 to submit bids for the first phase of the project.

Jennifer Wang, director of the Washington, D.C., office of the Institute for College Access and Success, known at TICAS, called the department’s announcement “a really important step forward.”

Much of the department’s announcement “recognizes what advocates and TICAS have been asking for,” Wang said. “It shouldn’t matter who your servicer is -- borrowers should have consistent, accurate information.”


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