U.S. Will Explore New Loan Servicing Models, Official Says

December 2, 2014

The U.S. Department of Education plans to explore new approaches to how it services federal student loans, a top official said Monday.  Undersecretary of Education Ted Mitchell, addressing a Federal Student Aid conference in Atlanta, suggested that the government may move away from its current system -- or at least elements of it -- of contracting with four companies to manage payments for the bulk of its federal student loan portfolio.

"Given our extensive experience with the current multi-servicer, multi-system, contract model, we are particularly interested in hearing about alternative approaches," Mitchell said in prepared remarks posted on the department's website. The department last week formally solicited public input on its loan servicing system.

He said that the department is considering stopping loan servicing companies -- like Navient (a spin-off of Sallie Mae), Nelnet, Great Lakes and Pheaa -- from promoting their own brands when they manage payments for federal loan borrowers.

The Education Department, which has been under fire from consumer groups, unions, other federal agencies, and some Senate Democrats over loan servicing issues, had previously defended its approach to managing payments for the growing share of borrowers who have federal direct loans.

James Runcie, the chief operating officer of the Federal Student Aid office, told Congressional lawmakers in March that the department was satisfied with the current model of having loan servicing companies compete among themselves for a share of federal loans.

Mitchell also said Monday that the department plans to establish in the coming months a new system for receiving consumer complaints. He said that officials would draw upon existing complaint systems at the Consumer Financial Protection Bureau and the Department of Veterans Affairs.

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