Biden-Harris Administration Releases Plan to Safeguard Borrowers Across the Country through Student Loan Servicer Accountability Framework

The Biden-Harris Administration is fully dedicated to supporting borrowers who have taken out student loans as they navigate the process of returning to repayment and addressing issues in the student loan system. In order to better protect borrowers nationwide, the Biden-Harris Administration is taking measures to ensure that student loan servicers fulfill their responsibilities to students, borrowers, and taxpayers when handling student loans. Today, the U.S. Department of Education (Department) is unveiling a framework outlining how it will increase accountability for student loan servicers and ensure that borrowers are not negatively impacted by servicer mistakes.

The strategies outlined in this framework will incentivize servicers to better support borrowers and will hold them accountable when they fail to deliver satisfactory service.

“The Biden-Harris Administration has made it clear that we will not tolerate borrowers suffering due to inadequate servicing,” said U.S. Secretary of Education Miguel Cardona. “Today’s announcement sends a strong message to all our contracted student loan servicers that the Department will use every available oversight and accountability tool to ensure borrowers receive the level of service they deserve. As the Biden-Harris team continues to address the issues in our broken student loan system, we will prioritize the needs of borrowers and do whatever it takes to support their success as they begin repayment.”

“The student loan servicing landscape has undergone significant changes since the Department began working with multiple servicers in 2009,” said Federal Student Aid (FSA) Chief Operating Officer Richard Cordray. “FSA is committed to ensuring that servicing contracts evolve to meet the needs of borrowers. The return to repayment is an unprecedented time in the Direct Loan program, and in 2024, we will transition to new contracts that provide us with updated requirements for servicers and more ways to ensure borrowers receive the support they deserve.”

Framework for Oversight and Accountability of Student Loan Servicers to Protect Borrowers

Under this Administration, the Department has implemented an oversight strategy for federal student loan servicers that employs various methods to identify and address problems that may harm borrowers in real time. The Department’s oversight efforts, specifically focused on the borrower experience, include monitoring servicers, tracking complaints, and assessing outcomes based on results. These oversight and accountability tools are used in conjunction to ensure a comprehensive evaluation of servicer performance. The Department employs multiple approaches to monitor servicers across different channels and uses enforcement measures when necessary.

Servicer Oversight – Monitoring

The Department’s rigorous monitoring work has allowed it to quickly identify and address servicer errors that have occurred, serving as a safeguard for borrowers. Prior to the return to repayment, the Department implemented several of the strategies outlined below, such as mystery shopper campaigns and enhanced data monitoring, to swiftly detect errors and take corrective action. Regular monitoring of our loan servicers ensures that they deliver quality customer service and accurately process borrower payments and applications. The Department takes a risk-based approach to overseeing loan servicers by leveraging borrower complaints, customer satisfaction surveys, interagency referrals, data monitoring, random sampling, and servicer self-reporting.

The Department is implementing the following strategies to strengthen servicer oversight and monitoring:

• Direct servicer monitoring: Under this approach, FSA staff monitor the customer service quality provided by loan servicers. FSA assesses the interactions between servicers’ customer service representatives and borrowers, reviews borrower phone calls and chats, and conducts secret shopper calls to evaluate the accuracy of servicers’ responses to borrowers’ queries. FSA staff also conducts secret shopper campaigns on broader issues related to the return to repayment, as well as specialized servicing issues like inquiries about Public Service Loan Forgiveness.
• Collaboration with federal and state regulators: The Department cooperates with other government agencies, such as the Consumer Financial Protection Bureau (CFPB) and state attorneys general, who are responsible for enforcing consumer financial laws. The Department recently took steps to update its interpretation of federal preemption to clarify the authority of states to enforce state consumer protection laws, enabling closer coordination between the Department and its state partners. This closer coordination and cooperation further enhance both servicer accountability and borrower protections.
• Utilizing borrower complaints: This includes analyzing complaints filed through FSA’s Office of the Ombudsman, which closely collaborates with the oversight team to determine if complaints indicate broader servicer issues. The Department also regularly monitors social media and news stories to track borrowers’ reports and determine whether these complaints are isolated incidents or indicative of larger errors affecting a significant number of borrowers. These listening tools play a crucial role in the monitoring process, as borrowers are best positioned to report issues that directly impact their repayment.

Servicer Accountability – Actions

When the Department identifies performance issues that fall short of its standards, it has the authority to take actions against servicers. The Biden-Harris Administration will continue to employ the following measures to safeguard borrowers from inadequate servicer conduct:

• Withholding Payment: When servicers fail to fulfill their contractual obligations or meet acceptable standards, the Department can withhold payments based on the number of borrowers who are not being served.
• On October 30, 2023, the Department announced it was withholding $7.2 million from MOHELA for its failure to send timely billing statements to 2.5 million borrowers.
• Suspending or Reallocating Borrowers: If servicers demonstrate an inability to carry out their duties effectively for the borrowers they manage, the Department has the ability to suspend the allocation of additional borrowers or reassign borrowers to other servicers. Additionally, the Department can allocate new loans to high-performing servicers. Withheld accounts have direct financial implications for servicers, as their compensation is largely determined by monthly fees for each borrower they service. Consequently, having fewer accounts leads to reduced future payments.
• Contractor Performance Reports (CPARS): The Department generates summary reports for each servicer using the government-wide grading system, evaluating various aspects of the servicer’s work. CPARS scores factor into the selection process when servicers compete for new contracts, so poor scores can result in a loss of future revenue.
• Corrective Action Plan (CAP): The Department mandates that servicers rectify servicing errors through remediation plans. Servicers must submit plans that address any harm suffered by borrowers and implement measures to prevent the recurrence of such issues.

Aiding borrowers affected by servicer issues

In addition to identifying servicer issues and taking action to resolve them, the Department has a strategy to protect borrowers from servicer mistakes. When certain types of errors are detected, the Department directs servicers to place affected borrowers in a short administrative forbearance while the errors are being addressed. In certain scenarios where potential servicer errors may harm a borrower’s progress towards loan forgiveness, the Department has instructed servicers to count those periods of administrative forbearance towards Public Service Loan Forgiveness and income-driven repayment forgiveness, while resetting accrued interest to zero.

Moving toward a modern servicing system – Unified Servicing and Data Solution (USDS)

The Department will enhance its capacity to reward servicers for positive outcomes and hold them accountable for poor performance through the implementation of the USDS.

Previously, the Department announced its plan to transition to the new loan servicing environment in the spring of 2024. This new environment will include strengthened security, accountability, and transparency provisions that are absent in the current legacy contracts. By utilizing USDS, the Department aims to create a loan servicing environment that better serves borrowers and enhances oversight capabilities for the more than 37 million borrowers with federally managed student loans, of which over 28 million have