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The Office of Federal Student Aid has canceled its solicitation for vendors to run its intermediate phase of modernizing student loan servicing, according to people familiar with the matter.

FSA introduced the Interim Servicing Solution, or ISS, last fall as a part of its Next Gen FSA Initiative to provide a bridge between the current student loan servicing system and a single, modernized website. Currently, there are nine different pre-default loan servicers that each operate their own website, contact center and staff training. ISS was intended to cut that down to two vendors who would take on all of the same responsibilities as the existing servicers.

The end-of-year congressional budget agreement passed in December included several provisions related to the ISS solicitation, including a prohibition on allowing the secretary of education to award funding for any work related to developing a new loan servicing system unless it included multiple servicers that contract directly with the Department of Education. After FSA reviewed the impact of the provisions, it decided to cancel ISS solicitation.

FSA plans to work with the leadership in the Biden administration to refine its long-term operational strategy for loan servicing. It's unclear what their next steps will be or when those steps will be taken.

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