Department of Education to overhaul federal student loan servicing systems

The Department of Education is preparing a major overhaul for the current student loan servicing systems.  (iStock)

The Department of Education recently announced that it will overhaul its current federal student loan servicing systems, giving more power to borrowers to easily manage their student loans. 

The department said it expects that improving the servicing systems could help borrowers to avoid missed payments or even default. 

“The USDS [Unified Servicing and Data Solution] is the long-term loan servicing solution designed to provide federal student loan borrowers with a 21st-century customer experience,” Richard Cordray, the Department of Education’s chief operating officer, said in the May 19 announcement. “Building on lessons learned from past loan servicing efforts, FSA and the U.S. Department of Education are committed to holding USDS servicers accountable for a high level of performance and focusing on key objectives like reducing borrower delinquency and default.”

If you are struggling to repay your education debt, you could consider refinancing your private student loans to reduce your monthly payments. Visit Credible to find your personalized interest rate without affecting your credit score.


Student loan servicers not reaching federal expectations

There are six loan servicing systems that work with federal student loan borrowers through their time in school and their repayment. Each system has its own staff, website and contact center and conducts its own borrower outreach. However, Cordray said this approach is detrimental to borrowers. 

“This disjointed servicing system is often confusing for borrowers and, frankly, the quality of work has not always met our standards,” he said. “Borrowers are understandably frustrated when they receive inconsistent information about something as important as their student loans. Too often, borrowers miss out on available repayment options, and millions have defaulted as a result.”

The current loan servicing contracts will expire in December 2023, making it an optimal time to create a new system, according to the Department of Education. The goals for the new systems that are implemented will be to:

  • Give all Federal Student Aid (FSA) borrowers complete loan management through
  • Reduce disruptions for account transfers
  • Boost servicers’ accountability to decrease student loan delinquencies and defaults

While these updates will only apply to those with federal student loan servicers, private borrowers can change their student loan servicer and possibly lower their monthly payments by refinancing. Visit Credible to compare multiple student lenders at once and choose the one with the best interest rate for you.


FSA to modernize student loan repayment

FSA has already begun taking steps to implement its vision for modernizing the student aid experience, calling it “Next Gen FSA.” It seeks to modernize its technology, processes and operations for student lending, giving borrowers more access and control through their online accounts.

Under the new system, the USDS will give the management of all servicing platforms, contact centers and manual processing activities for all nonspecialty loan servicing activity to FSA. The work currently associated with specialty programs such as the Public Service Loan Forgiveness (PSLF) Program and others will shift to and FSA’s Business Process Operations (BPO) vendors.

“These extensive efforts cannot be accomplished immediately, so FSA is taking an incremental approach,” Cordray said. “We are launching a focused set of high-return enhancements when the USDS servicers go live.”

When it launches, USDS will co-brand with FSA and create a single sign-on experience for all federal student loan borrowers. Within five years, FSA will move into full account management and repayment.

Private student loan borrowers looking to lower their monthly payments could consider refinancing. To see if this is the right option for you, contact Credible to speak to a student loan expert and get all of your questions answered.

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