Federal Student Loan Customer Service In Need Of “Significant” Improvements

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Last year, the Department of Education issued more than $96 billion in federal student loans to more than 9.1 million college students. Someday in the future these borrowers will begin repaying these debts, but a new report finds that limitations and a disconnect between the federal government and its contracted loan servicers can make this a daunting and sometimes costly task. 

A new report [PDF] from the Government Accountability Office found an immediate need for significant improvement to the way in which the DOE contracts with and monitors the performance of servicers that handle billing and other services for borrowers.

The DOE and its contracted servicers are tasked with providing a wealth of information to borrowers about their federal Direct Loans, such as repayment plans and procedures. However, the GOA report found limitations in borrowers’ access to federal service call centers, the department’s complaint tracking and other areas.

For the third consecutive year, borrowers reported they had difficulties with contracting servicers through their call centers.

This, despite the DOE earmarking call centers as an area that needed improvement in 2014 and 2015, little has changed, the GOA report finds.

One of the reasons for the call center issue is because the DOE has set no minimum standard for call center hours, instead allowing each servicer to set its own. This results in some borrowers having limited access to assistance.

For example, a borrower on the West Coast may have an East Coast servicer whose call center hours end at 1:30 p.m. Pacific time, making it nearly impossible to obtain information on their account.

Six of 24 borrowers interviewed by GAO reported difficulties in contacting their assigned servicer by phone outside of work hours.

Three of these borrowers said they experienced a range of adverse effects at least in part due to limited servicer hours, such as missing opportunities to participate in alternative payment plans when their income changed, falling behind on payments, or slipping into delinquency.

Other weaknesses found in the report include the DOE’s use of multiple systems to capture borrower complaints and that it tracks limited information on these complaints, making it difficult to determine if contracted servicers are actually providing “superior service” to borrowers.

Additionally, the GAO found that the DOE’s policy to reward servicers with additional loan assignments based on performance may be based on faulty metrics.

“These metrics and related compensation do not fully align with Education’s goals for superior service and program integrity,” the report states.

Because there are no performance metrics related to compliance with program requirements, the GAO points out that servers with more compliance errors experience no reduction in assigned loans, even if borrowers experience problems with that servicer.

For example, the report states, past compliance reviews found issues with servicers not giving thousands of borrowers a full grace period before repayment began, but these findings had no effect on the amount of Direct Loan accounts the servicers were assigned the next year.

“Unless Education evaluates and better aligns its servicer performance metrics and compensation with strategic goals, borrowers will continue to be at risk for experiencing errors and poor customer service,” the GAO states.

The office provided the DOE with several recommendations aimed at improving servicing and customer service related to federal direct loans.

First, the DOE should implement a minimum standard for servicer call center hours, allowing borrowers in all areas of the country improved access to servicers.

Ensure that a new borrower complaint system includes comprehensive and comparable information on borrower complaints made to both the DOE and servicers. This will allow the DOE to track trends and better manage the program to effectively meet borrower needs.

Additionally, the DOE must evaluate and make needed adjustments to Direct Loan servicer performance metrics and compensation to improve assessment. This should include using baseline data, and alignment with Federal Student Aid’s strategic goals aimed at superior customer service and program integrity, as well as ensuring that the assignment of new loans to servicers takes program compliance into account.

In response to the GAO report, the DOE has agreed to establish core hours for call center hours, take steps to procure a new loan servicing system to create a single portal to collect borrower complaints, and agreed to evaluate existing and alternative performance metrics and compensation strategies as part of its ongoing student loan servicing procurement and reflect the results in future servicing contracts

Consumer advocates tell Consumerist that the GAO findings are the latest in a line of federal loans servicing issues previously uncovered.

“They confirm that servicing quality is wildly inconsistent, and borrowers are struggling to navigate repayment as a result,” Suzanne Martindale, staff attorney for Consumers Union, says. “We are encouraged that the Deptartment plans to create a single portal for federal education loans, to ensure more consistent servicing experiences for borrowers. Nonetheless, we believe that loan servicers need clear industry wide standards, and urge the [Consumer Financial Protection Bureau] to continue exploring new rules for both federal and private education loan servicers.”