Education Department issues guidance for improved customer service and protections for students who get loans
About 43 million consumers owe money on student loans, and one-in-four of these borrowers are past due or in default.
The new loan system will make it easier for borrowers to manage and repay their loans. Any borrower can log into one website to access information, make payments, apply for benefits, and manage their account.
"Today's policy directive is a big win for tens of millions of borrowers," said U.S. Secretary of Education John B. King Jr. "It will help ensure that student loan borrowers get the service they deserve."
While many student loan borrowers are repaying their student loans, there are still too many borrowers who are struggling or who may be at risk of defaulting on their loans, King said.
"This guidance has the power to strengthen our student loan financing system by providing long-overdue improvements to servicing," said Treasury Deputy Secretary Sarah Bloom Raskin. "
"Today's announcement is an important milestone in our work to reform the student loan servicing market," said Rich Cordray, director of the bureau. "These servicing standards can help to increase accountability and improve the quality of information borrowers receive about their loans and the affordable repayment plans they are entitled to by law."
The policies give direction to Federal Student Aid in five areas:
1. Economic incentives: FSA will include incentives that encourage servicers to help borrowers stay on top of their loans and avoid default while avoiding fixed-fee loans that create a disincentive to help struggling borrowers.
2. Accurate and actionable information: Key improvements will be made to oral and written communications with borrowers – especially those borrowers who are at the highest risk of default.
3. Consistency: FSA will only use only U.S. Department of Education-branded communications and create web pages and printed materials that have the same look to eliminate confusion for borrowers. The guidance also sets forth a common set of servicing practices designed to assist borrowers in managing their student loans.
4. Accountability: FSA will step up monitoring of servicing vendors and include complaint resolution into the oversight of those vendors.
5. Transparency: There will be better federal student loan data transparency and publicly available information on the tracking and reporting of requests for assistance, escalations, and appeals to improve accountability for loan servicing performance.
Last year, the bureau released a report identifying widespread concerns in the student loan market. Many consumers described slipshod practices that spur financial hardship and help drive struggling borrowers into default.