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Ed. Dept. Wants 'Borrower-Focused' Student Loan Servicers

By Brett Snider, Esq. on September 02, 2014 | Last updated on March 21, 2019

The U.S. Education Department made a student-friendly move on Friday, announcing it would renew focus in its contracts with student loan servicers on being "borrower-focused."

Undersecretary of Education Ted Mitchell noted in an interview that the new student loan servicers would be put "on notice" that they have to be more consumer friendly, reports The Wall Street Journal. The new federal contracts even provide quarterly bonuses for servicers who have lower rates of borrower delinquency.

What does this shift mean for America's student loan borrowers?

Fighting Default With Better Loan Service

Part of the reason for this shift in federal policy is the alarming increase in both student debt and default rates. According to New York Federal Reserve data (as reported by the WSJ), approximately one in four borrowers who have loans are "at least 90 days behind on student loan bills." Combine that with the fact that over half of Americans are still paying off their student loans, and you have a recipe for disaster.

Trying to stem this tide of defaults, the Education Department has announced it has renegotiated contracts with major student loan servicers in order to incentivize working with borrowers to avoid default. According to a recent press release, these incentives include:

  • Increasing the weight of borrower customer satisfaction in performance metrics for servicers;
  • Payment structures which are tied to servicers' success in keeping borrowers in on-time repayment and avoiding default; and
  • "Additional incentives" aligned with reducing payment delinquency across each servicer's portfolio.

Secretary of Education Arne Duncan noted that borrowers "deserve high-quality support from their federal loan servicer[s]," and hopefully these changes will help provide better service.

What Should Borrowers Do?

The renegotiation of federal servicer contracts includes big names like Nelnet Servicing, LLC and Pennsylvania Higher Education Assistance Agency. Even if you don't have either of these servicers, watch your inbox and check out your servicer's website to make sure you aren't missing out on an easy way to reduce your payments or avoid default.

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