Announcing the Next Generation of Federal Student Loan Servicing

Announcing the next generation of federal student loan servicing

By: Richard Cordray, Chief Operating Officer, U.S. Department of Education’s office of Federal Student Aid

Today, I’m pleased to announce that Federal Student Aid (FSA) posted the solicitation for what we’re calling the Unified Servicing and Data Solution (USDS). The USDS is the long-term loan servicing solution designed to provide federal student loan borrowers with a 21st-century customer experience. 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.

Currently, six loan servicers support borrowers first while they are in school and then as they repay their loans. Each servicer operates its own website and contact center, trains its own staff, and conducts its own outreach to borrowers. This disjointed servicing system is often confusing for borrowers and, frankly, the quality of work has not always met our standards. 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. 

With the current loan servicing contracts set to expire in December 2023, now is the time to establish a new servicing system that is more accountable for helping borrowers. More than 35 million borrowers with federally managed student loans are counting on us to help them achieve their life goals through higher education.

The USDS will replace the legacy servicing contracts for Direct Loans and federally managed Federal Family Education Loan (FFEL) Program loans with the overarching goals of

  • providing all federally managed borrowers with complete account management capabilities on StudentAid.gov;
  • reducing the disruption of account transfers; and
  • increasing servicer accountability to reduce loan delinquencies and defaults and other customer service benchmarks through clear, measurable service-level agreements.

FSA has already taken important steps to implement the next generation of loan servicing. The USDS represents the culmination of the Next Gen FSA initiative. This initiative modernizes FSA’s technology, processes, and operations to improve the user experience and outcomes for students, parents, and borrowers. We are building on investments made in recent years, such as the Digital and Customer Care (DCC) platforms—which include the StudentAid.gov website—and a data platform called the Enterprise Data Management and Analytics Platform Services (EDMAPS).

USDS servicers will manage the platforms, contact centers, and manual processing activities for all nonspecialty loan servicing tasks. The customer interface and processing work currently associated with specialty programs—such as the Public Service Loan Forgiveness (PSLF) Program, TEACH Grants, and total and permanent disability (TPD) discharge—will shift to StudentAid.gov and FSA’s Business Process Operations (BPO) vendors.

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

On the go-live date, USDS servicers will modify their borrower-facing communications to co-brand with FSA and provide account authentication through the FSA ID. This will produce a single sign-on experience for customers as they transition to full account management functionality on StudentAid.gov.

Within five years of the go-live date, FSA will move full account management, branding, and repayment away from USDS servicers’ websites. During this time, FSA plans to enhance servicing functionality through a single FSA-branded interface, build out a servicing data repository to improve the account transfer process, and enhance cybersecurity.

Ultimately, our goal at FSA is to provide a better customer experience for all federal student loan borrowers. They will be able to manage their entire student aid experience, from completing the Free Application for Federal Student Aid (FAFSA®) form to successfully repaying their loans, on StudentAid.gov. They will also be supported by high-quality contact centers and multiple digital self-service tools that help them use and understand the federal student aid programs.

FSA plans to award new contracts this winter and expects USDS servicers to start in December 2023, when the current contracts expire. Moving forward, we will keep our focus on greater efficiency, less complexity, and better borrower experiences and outcomes.