- The Department of Education has announced that it is extending the contracts of six student loan companies until 2023.
- Companies have agreed to higher standards to protect borrowers and ensure a smooth transition to repayment in 2022.
- FSA director Richard Cordray previously said student loan companies were shutting down for fear of liability.
After President Joe Biden announced in August the “final” extension of the freeze on student loan payments during the pandemic, three student loan companies announced plans to shut down their federal services, sounding the alarm bells for borrowers and Advocates who fear an administrative mess with the payments restarting next year.
But the Education Department made it clear on Friday that the six student loan companies continuing their contracts had agreed to higher standards, both during the transition to repayment and for the duration of their contracts.
The ministry said in a press release that it has extended the contracts of six student loan companies, and within those contracts are stricter standards of performance, transparency and accountability that will protect borrowers who will be “essential” to ensure a smooth transition to repayment. Specifically, the new terms give the Federal Student Aid Office (FSA) greater ability to monitor issues with service providers as they arise and force businesses to comply with laws. state, local and federal matters relating to loan servicing.
“The FSA is raising the bar for the level of service that student loan borrowers will receive,” FSA director Richard Cordray said in a statement. “Our actions come at a critical juncture as we help borrowers prepare for the resumption of loan repayments early next year. The excellent work done by our negotiating team here allows us to ensure that lending services meet the higher standards or suffer the consequences.
The press release indicated that the six companies – Great Lakes, HESC / Edfinancial, MOHELA, Navient, Nelnet and OSLA Servicing – had agreed to extend their contract until December 2023. Notably, while Navient signed a contract extension in September, it then became the third company last month to request the closure of its federal lending services, which the department is currently reviewing.
FSA will assess companies quarterly on their ability to meet objectives related to:
- The percentage of borrowers who end a call before reaching a customer service representative;
- How well do customer service representatives answer borrower questions and navigate repayment options?
- Whether providers correctly process borrower demand the first time;
- And the overall level of customer service provided to borrowers.
Cordray said during remarks at a conference earlier this month that student loan companies are choosing to shut down rather than face greater liability. Granted, he didn’t comment on specific companies, but noted that “not everyone is happy” with his plans to step up oversight of the industry.
This is the latest effort by the Biden administration to tackle student loan abuse. Last week the FSA announced the reactivation of an enforcement office to “vigorously investigate” the abuse of student loans and federal aid in schools, and this follows Rohit Chopra’s confirmation to lead the Consumer Financial Protection Bureau (CFPB), which highlighted its plans to protect borrowers from student loans.
As Insider previously reported, borrowers found it extremely difficult to get help from their student loan companies, which kept them from paying off their student loan debt. Charles Moore, 49, previously told Insider he had a simple question about consolidating his loan with his wife’s, and he ended up being on the phone for four hours trying to get an answer.
“Nobody wants to help you,” Moore said. “And you don’t know how to get help. Even if you go back and forth, the lender doesn’t know what the server is doing and the server doesn’t know what the lender is doing.”