NASFAA Task Force Report: Servicing Issues

A recent report from the National Association of Student Financial Aid Administrators (NASFAA) made recommendations to the U.S. Department of Education (ED) on ways to improve federal student loan servicing by pointing out areas of deficiency in the system along with possible solutions. The report, developed by a task force made up of individuals from all types of postsecondary institutions, proposed six recommendations, detailed below.  Not only was it the hope of this report that these recommendations help to address the broader issues of student debt and default but also that they be considered  in future contract negotiations between the U.S. government and servicers.

Among the primary recommendations:

• Create one central loan portal where students can manage all loans at the same time and in the same place.
  • The portal should be developed by ED to help students keep track of all of their loans, total indebtedness and repayment status.
  • Many borrowers have more than one loan, each with its own terms, conditions and servicers and a one-stop-shop would help streamline the entire process.

• Prevent servicers from branding communication with borrowers.
  • Currently, services co-brand with ED on all correspondence which causes confusion and leads students to be unclear about who the holder and servicer of their loan really is.
  • If ED was the only brand sent out with loan information it would help legitimate communication and make sure students take it seriously.

• ED needs to offer standard consumer protections for student borrowers such as those offered with mortgages, credit cards and car loans.
  • Protections would include standardized processes for statements and payment handling, server transfers, error resolution and delinquency servicing.

• Allowing innovative technologies would help servicers to communicate with borrowers more efficiently.
  • The ability to use data more effectively could help identify borrowers truly at risk of defaulting, as opposed to a borrower who is merely a “slow payer.”
  • The loosening of the current due diligence requirements would also help servicers disseminate disclosures at the right times based on the borrower’s particular situation.

• The entrance and exit counseling requirements should be incorporated into the Financial Awareness Counseling Tool (FACT).
  • The FACT, created and recommended by ED, but not required, boasts a good number of innovative and comprehensive features in addition to providing borrowers with a better understanding of their loan portfolio. Borrowers can also formulate a plan to repay and a demonstration of the effects of reducing overall debt.
  • The current models of counseling would do well to incorporate with this platform to better inform and prepare students for repayment success.

• ED should create a policies and procedures manual for servicing.
  • A manual would help standardize areas where there is financial impact, or risk, for the borrower.
  • A manual would also help make training, communication and borrowing consistent across servicers.
  • In general, standardization could help improve a wide range of issues and processes in borrowing. For instance, it could lessen the frequency of forbearance by ensuring that all students receive standardized communication regarding their repayment options.