We’ve been preaching for years that something needs to change with student loan servicers and now it will. Besty Devos and the Department of Education are moving forward with a massive overhaul of the Federal Loan servicing system for Direct student loans. They have announced the five contract awards as part of their Next Gen FSA vision.
Will these changes be a good thing? We still don’t know but should know more as the Department of Education releases more information. This article discusses what the Next Gen FSA vision is, what the changes might mean to you, AND WHAT YOU NEED TO DO TO PROTECT YOURSELF.
Newest Update: The government just exercised their ability to extend their servicing contracts with FedLoans, Great Lakes, Navient, and Nelnet through December 2021. They extended the contracts with CornerStone, Granite State, Edfinancial, MOHELA, and OSLA through March 2022. This means the following changes will not happen this year. Most likely it will be phased in during 2021.
For those of you that want to listen while you drive/workout, download the podcast below:
The Next Gen FSA Vision
It is a well known fact that loan servicers mess up all the time. Allocating prepayments incorrectly, missing payment information for IBR, missing qualified payments for PSLF, and missing account records are just a handful of problems that we constantly see with loan servicers.
In 2017, Besty Devos announced the plans for Next Gen FSA. The Next Gen FSA program shifts all Direct loans to one centralized servicing platform. The purpose is to “take a major step toward our commitment to improving customer service and holding our contractors accountable for their performance.”
The most important product of Next Gen is the recently launched website https://www.StudentAid.gov. It is a single website that consolidates student aid resources and data from four other sources: studentaid.ed.gov, a website for students, parents, and borrowers to access information about different financial aid programs, fsaid.ed.gov, where applicants create their FSA accounts, studentloans.gov, where they can manage their loan and repayment, and nslds.ed.gov, the financial financial-aid database, where students can access information about their loan debt.
What These Changes Mean To You
Massive change compared to the current system…
You will no longer be dealing with your current loan servicer (this is for Direct Loans, FFEL loans are still going through the old servicers. Side note: most of you reading this have Direct Loans). Therefore, you won’t be working with the companies you have come to love such as Great Lakes, Navient, Nel Net, Fed Loan Servicing, etc… (Yes, I’m writing that with a sarcastic tone).
Instead, everyone will log into https://www.studentaid.gov. You’ll use one system to repay your loans and get information on your loans. The aforementioned contract awards were given to five companies. These companies will have call centers and be responsible for answering emails similar to the current loan servicers but with a lot more oversight (which I detail more in the next section).
What You Need To Do To Protect Yourself
There are two big red flags that you need to be aware of to protect yourself if this change happens in the next 6 – 18 months.
Red Flag 1
Transitions between systems/technologies NEVER goes smoothly. I hardly doubt that the transition from bad servicing companies to this new portal will go 100% perfect.
Therefore, you need to protect yourself. Starting this month, keep records of everything. Download loan balances, payment history, documents stored on your loan servicers website, PSLF info if you are pursuing PSLF, etc…
Red Flag 2
The new loan servicing environment is said to have comprehensive contact center training and oversight to ensure that agents have up-to-date knowledge of federal student aid programs to give customers the right answer in every interaction.
However, I see this being the same problem currently experienced by loan servicers. The various Federal loan programs are complex. Most of the people hired in these call centers have little education, especially in finance. In fact, most don’t know how a traditional loan works let alone the complexities of income-based repayment plans. How they are going to train a mass amount of people and reduce employee turnover is a problem. Therefore, you should still work with student loan/financial experts and not trust what they are telling you is “best” for you.
With that said, I have some optimism that it might work. The contracts signed today also contain 41 objective, measurable service-level agreements that hold vendors to high operational performance standards. The question becomes how strictly do they adhere to these standards…Only time will tell.
Pros of Next Gen FSA
All student loan info in one place
Same payment process for everyone
Same User experience for everyone
New scorecard for accountability
Same as before (can the loan servicing companies train their employees in the complexities of the loan programs).