A (Recent) History of Student Loan Servicing Reform

This piece provides a timeline of the events and actions leading up to the current servicing solicitation. For an overview of the current student loan servicing system, click here.

The U.S. Department of Education (ED) has originated or guaranteed hundreds of millions of federal student loans, but it does not manage this debt on a day-to-day basis. Instead, it contracts with servicers, companies or organizations that are the primary points of contact for borrowers once they leave school, and their responsibilities include communicating with borrowers about the status of their loans, providing information on and assisting borrowers as they enroll in repayment plans, managing contact centers, and processing payments, among others. Yesterday, ED’s Office of Federal Student Aid (FSA) announced that it is seeking bids for a new student loan servicing system—the fifth such solicitation since 2016—which will be called the Unified Servicing and Data Solution (USDS). (For an overview of the current student loan servicing system, click here.)

ED and FSA have been working to restructure the often troubled servicing environment since 2014. The large-scale, ambitious overhaul—which is now called “Next Gen”—includes not only loan repayment via USDS but also tools and services related to how students learn about, apply for, and receive their aid in the first place. Although much has been accomplished since 2014 to identify and address problems faced by students and streamline borrower-facing components of the system, the Next Gen initiative has yet to be completed due to evolving priorities at ED and FSA, resource limitations, new Congressionally mandated requirements, and protests related to the procurement process.

Below is a timeline of events and actions—based on and built from the Center for American Progress’ 2019 timeline—leading up to the current procurement.

This list is primarily focused on ED and FSA actions and does not include a comprehensive list of state enforcement efforts, work done by other federal agencies, or ongoing and resolved lawsuits (although high-level information about each of these can be found in this companion piece). These are important parts of the story, and I invite others to build on this timeline going forward.

2014

NOVEMBER

• FSA solicits market research for a new loan servicing system.

2015

MARCH

• The Obama Administration releases a Student Aid Bill of Rights.

MAY

• The Consumer Financial Protection Bureau (CFPB) releases a request for information (RFI) highlighting its engagement with ED and the U.S. Department of the Treasury (Treasury) to improve loan servicing. The request seeks “comments related to the critical role that servicing plays in facilitating repayment of student loans, in order to improve customer service, identify innovative practices and business models, and assess the current framework that exists regarding the consumer protection for student loan borrowers in repayment.”

SEPTEMBER

• The CFPB publishes an analysis of the comments and recommendations it received for servicing reform.
• ED, Treasury, and the CFPB develop a joint statement of principles for student loan servicing. This framework states that borrowers and servicers alike will benefit from a clear set of minimum requirements for activities of student loan servicers and for servicer communications with borrowers.

OCTOBER

• ED publishes a report detailing recommendations for an improved loan system.

DECEMBER

• The Consolidated Appropriations Act of 2016 requires that ED assign new student loan borrower accounts to servicers on the basis of their performance compared to all loan servicers utilizing established common metrics and on the basis of the capacity of each servicer to process new and existing accounts. (The legislation also requires ED to develop a common manual for Direct Loan servicers, which, as of May 2022, has not been completed.)

2016

APRIL

• FSA releases a solicitation (solicitation #1) for a new student loan servicing environment. The new servicing system would feature a single web portal through which all loan borrowers can manage their accounts, standardized communications, improved oversight of the portfolio and stronger accountability and standards for loan servicers, and a single servicing platform owned by FSA through which all servicers and other vendors will be able to “plug in.”

JULY

• ED publishes a policy memorandum from Ted Mitchell, the Department’s Under Secretary, (“the Mitchell memo”) that details its vision for the new loan servicing system.

OCTOBER

• FSA selects three bidders to move forward to the second phase of the solicitation process. The offerors selected are the companies that own existing back-end servicing platforms: GreatNet (Great Lakes and Nelnet bidding together), Navient, and the Pennsylvania Higher Education Assistance Agency (PHEAA), which operates under the brand FedLoan Servicing.

2017

JANUARY

• Beginning of the Trump Administration.

APRIL

• Secretary DeVos cancels three Obama-era policy memos, including the Mitchell memo and an addendum, as well as a memo from former Secretary John King.
• ED amends the Obama servicing solicitation, removing key consumer protections and establishing a process to bring on board one servicer to service all loans.

JUNE

• A bipartisan group of senators (and others) raise concerns over the amended servicing solicitation. The procurement is also the subject of several bid protests.

AUGUST

• ED cancels this second procurement and instead announces Next Gen, a separate recompete of the servicing contracts that will use a single platform for multiple servicers, upgrade technology, and improve data reporting systems.

SEPTEMBER

• ED ends its data sharing partnership with the CFPB that facilitated shared oversight of federal student loan servicing.

NOVEMBER

• FSA outlines preliminary plans for the servicing solicitation at a conference.

DECEMBER

• ED directs its contracted loan companies to not respond directly to information requests from third parties, such as state attorneys general. It requires those requests for information to instead be sent to the department, which frequently rejects them.

2018

JANUARY

• FSA solicits market research for Next Gen.

FEBRUARY

• ED issues a solicitation for Next Gen proposals (solicitation #2). This new approach will modernize the technology and operational components that support federal student aid programs from application through repayment. Among other things, it seeks to improve efficiency, customer service, and program outcomes. (It includes nine separate solicitations.)

MARCH

• The Consolidated Appropriations Act of 2018 establishes a range of requirements related to ED’s oversight and management of student loan servicers, including having multiple servicers manage accounts and compete for these accounts based on performance.
• ED issues a notice indicating that it believes that state regulations related to servicing are preempted by federal law.

APRIL

• Contractors submit their proposals for Next Gen.

AUGUST

• FSA cancels two components of Next Gen—the website and customer engagement technology—and pursues an award through a specialized governmentwide procurement process.
• ED issues no-cost extensions for the “Title IV Additional Servicers,” or TIVAS (a mix of larger for-profit and state-based entities that collectively service the vast majority of the federal loan portfolio), which are set to expire in December.

OCTOBER

• FSA selects nine offerors to move forward in Next Gen. The vendors include current servicers Edfinancial (Higher Education Servicing Corporation, or HESC); Navient, teamed with General Dynamics Information Technology; Missouri Higher Education Loan Authority (MOHELA); Nelnet; Oklahoma Student Loan Authority (OSLA); PHEAA; and CornerStone (Utah Higher Education Assistance Authority, or UHEAA) and newcomers Teleperformance and Trellis Company.

NOVEMBER

• A number of entities, some of which were selected as offerors and some which were not, file protests.

DECEMBER

• ED cancels the Next Gen solicitation, as a result of appropriations language and lawsuits, promising an amended solicitation within a month.

2019

JANUARY

• FSA releases three new solicitations (solicitation #3) for Next Gen:
  • The Enhanced Processing Solution (EPS), which includes a single back-end student loan servicing platform for legacy student loans and transitional business operations to support servicing across the full life of the loan.
  • The Optimal Processing Solution (OPS), which includes a single student loan servicing system for new borrowers and supports the full student aid lifecycle, including the Free Application for Federal Student Aid (FAFSA).
  • The Business Process Operations (BPO) Solution, which provides all back-office operations in support of student loan servicing and anticipates multiple entities providing life of loan servicing and being allocated loan volume based on competitive metrics.

FEBRUARY

• FSA awards a contract of up to eight years and $577 million to Accenture for services collectively known as the Digital Customer Care (DCC) component of Next Gen. DCC’s functionality will be built out over the next several years, and today, the DCC contract includes:
  • A Digital Platform: StudentAid.gov, FSA Partner Connect, and associated mobile functionality, which serve as one-stop interfaces for borrowers and partners, respectively. StudentAid.gov will ultimately serve as a repayment portal, among other functionality, for all federally managed borrowers.
  • A Marketing and Communications Platform: This provides FSA with the ability to directly email partners and customers with relevant information.
  • A Customer Care Platform: This includes a single 1-800 number, a Customer Relationship Management (CRM) tool that provides a 360-degree view of customers and partners, a command center with 3rd party independent quality monitoring of BPO contact centers, and a solution for training and knowledge management for the BPO vendors.

MARCH

• MOHELA, Nelnet, and the New Hampshire Higher Education Loan Corporation, which operated its loan servicing business under the name Granite State Management & Resources (GSMR) sue ED over the new Next Gen solicitations.

JUNE

• FSA issues no-cost extensions to the existing not-for-profit servicers, or NFPs (generally smaller companies and state-affiliated agencies), whose contracts were due to expire.

JULY

• MOHELA and GSMR withdraw their suit against FSA and Next Gen.

DECEMBER

• The Fostering Undergraduate Talent by Unlocking Resources for Education (FUTURE) Act is passed into law. This legislation will, among other things, help streamline enrollment in and recertification for income-driven repayment (IDR) plans by directing the IRS and ED to share relevant borrower tax return data securely and with the consent of borrowers.

2020

FEBRUARY

• ED and CFPB sign a new memorandum of understanding to share complaint information from borrowers and other analytical tools.

MARCH

• The Trump Administration declares a national emergency related to the pandemic.
• Congress and the Trump Administration pause payments, interest, and collections for most federal loans until September 30, 2020.

APRIL

• FSA cancels OPS.

JUNE

• FSA announces it has signed contracts with five companies (Edfinancial, F.H. Cann & Associates LLC, Maximus, MOHELA, and Trellis Company) through the BPO solicitation to support customers through direct engagement via contact centers and provide back-office processing support. Navient, Nelnet, and Perspecta Enterprise Solutions, LLC file protests, which the GAO dismisses in October 2020.

JULY

• FSA cancels EPS due to budget constraints.

AUGUST

• The Trump Administration extends the payment pause until December 31, 2020.

SEPTEMBER

• FSA holds a pre-solicitation conference for vendors interested in an Interim Servicing Solution (ISS), which will include no more than two contracts with vendors. FSA plans to move loans from the current servicers to the ISS vendors and then add the BPOs such that the ISS vendors will become core processing platforms for FSA-branded, BPO-run contact centers. (In a stakeholder call in summer 2020, FSA indicates that it will eventually move to an End-State Processing Solution.)

OCTOBER

• CornerStone announces that it has terminated its contract with ED to service federal student loans. CornerStone’s 1.1 million federal student loan borrowers will be reassigned to PHEAA.
• ED releases the ISS solicitation (solicitation #4).

DECEMBER

• The payment pause is extended until January 31, 2021.
• MOHELA and GSMR file bid protests against the ISS solicitation.
• The Consolidated Appropriations Act of 2021 includes a number of provisions related to loan servicing, including directing ED to pause the ISS solicitation, requiring BPO vendors to have specific responsibilities, and allowing ED to further extend the current servicing contracts.

2021

JANUARY

• Beginning of the Biden Administration.
• The Biden Administration extends the payment pause until September 30, 2021.
• As a result of instructions in the Consolidated Appropriations Act of 2021, FSA suspends ISS.

MARCH

• ED announces an expansion of the student loan repayment pause to include all borrowers in default, extending these pandemic protections to 1.14 million additional people.
• The Department announces that it is no longer requiring borrowers who received a total and permanent disability (TPD) discharges to file documentation of their earnings during the national emergency period. Those who have had their loans reinstated because they did not submit earnings information will regain their discharges.

MAY

• Via a memo to vendors, the Biden administration rescinds its 2017 policy requiring information requests from state and federal regulators to go through ED, making it easier for these entities to provide oversight and enforcement.

JUNE

• FSA cancels its ISS solicitation due to recent appropriations language.

JULY

• Student loan servicer PHEAA announces it will exit the system. It will maintain a legacy contract with FSA as it transfers its accounts to other servicers.
• The GSMR also announces it is leaving the system and will transfer its loans to Edfinancial.

AUGUST

• The Biden Administration extends the student loan payment pause until January 31, 2022.
• ED issues a new regulation that allows it to issue automatic TPD discharges for borrowers identified through an administrative data match with the U.S. Social Security Administration. (A similar data match with the U.S. Department of Veterans Affairs already exists for former servicemembers.)
• The Biden administration revises ED’s 2018 position on the role of state laws and regulations in governing federal loan servicing, indicating that “state laws are preempted only in limited” circumstances.

SEPTEMBER

• Navient announces that it plans to leave the federal student loan servicing system and, pending ED’s approval, will transfer its portfolio to Maximus, which currently manages defaulted loans.

OCTOBER

• FSA approves the Maximus contract.
• FSA announces no-cost contract extensions for the six remaining servicers—Great Lakes, Edfinancial, MOHELA, Navient (soon to be Maximus), Nelnet, and OSLA—through the end of 2023, via the authority granted through the Consolidated Appropriations Act of 2021. These extensions include new terms that give ED “greater ability to monitor and address servicing issues as they arise; require compliance with federal, state, and local laws relating to loan servicing; and hold servicers accountable for their performance, including withholding new loans and associated revenue for poor performance.” FSA will also require servicers to maintain core call center hours, prohibit them from shielding themselves from certain types of lawsuits, and require increased reporting.
• ED announces a limited waiver for the Public Service Loan Forgiveness (PSLF) program, through October 2022, which allows all payments by eligible borrowers to count toward PSLF, regardless of loan program or payment plan. It also announces that it will automatically provide credit toward PSLF for military servicemembers and federal employees using data matches and review denied PSLF applications for errors.
• A negotiated rulemaking process starts, which includes proposals to permanently change regulations governing TPD, IDR, student loan interest capitalization, and PSLF.

NOVEMBER

• ED cancels its contracts with the private collection agencies which manage defaulted loans. ED intends for Maximus, the default servicer (and now the owner of Navient’s in-repayment portfolio), to temporarily manage these accounts and eventually to transfer debt collection work to the BPOs.

DECEMBER

• The Biden Administration extends the payment pause through May 1, 2022.
• The Biden Administration releases an Executive Order to improve customer experience and government services for Americans. Several provisions of the order apply to loans.

2022

FEBRUARY

• FSA releases an RFI related to its plans for a new servicing environment called the Unified Servicing and Data Solution (USDS).

APRIL

• The Biden administration extends the payment pause through August 31, 2022. In this announcement is also an indication that FSA will allow borrowers currently in default to receive a “fresh start,” allowing them to reenter repayment in good standing after the payment pause.
• NPR highlights and the GAO releases a report examining longstanding issues with the IDR program.
• ED announces an IDR waiver that includes:
  • Conducting a one-time account adjustment to count certain long-term forbearances toward IDR and PSLF forgiveness,
  • Increasing oversight of servicers’ forbearance use,
  • Conducting a one-time revision of IDR payments to address past inaccuracies, and
  • Permanently fixing IDR payment counting by reforming FSA's IDR tracking.

MAY

• ED announces the USDS procurement (solicitation #5).

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