Student Loan Servicers to Be Scrutinized By Task Force


NEW YORK (MainStreet) — The National Association of Student Financial Aid Administrators—NASFAA-- announced yesterday that it is teaming up with the National Direct Student Loan Coalition--NDSLC--on a joint task force that could put new pressure on student loan servicers to improve the repayment process. The Big Four servicers include Sallie Mae, The Pennsylvania Higher Education Assistance Agency, the Great Lakes Higher Education Corporation and NelNet.

The task force will focus on current servicing practices and make recommendations to the Department of Education's Office of Federal Student Aid.

NASFAA is a nonprofit that represents nearly 20,000 financial aid professionals at some 3,000 colleges, universities and career schools. NASFAA calls itself the only national association whose primary focus is on student aid legislation.

"Over the last several years, financial aid administrators have voiced concern about disruptions, inconsistencies and lack of quality servicing on federal student loans," said NASFAA President Justin Draeger. "However, it has been difficult to fully grasp the extent to which servicing problems exist, how widespread they might be, and how servicing practices may differ between various providers. This task force aims to more closely examine and report on these challenges."

"As national cohort default rates and student debt rise, it is important that students who want to make their loan payments can do that," added NDSLC Chair Chuck Knepfle. "This task force will help identify and recommend ways to improve communications and offer more effective repayment options to borrowers."

These issues have come up before—during last year's NASFAA conference, for example. Mark Kantrowitz, author of Filing the FAFSA and publisher of believes that now's the time to leverage increased interest in servicing issues.

"Some of the past issues had to do with serialization, where the same servicer is used for all of a borrower's direct loans, but where payments are applied differently," said Kantrowitz. "There's also some interest in having a single phone number and single web site for Direct Loan borrowers to reach their servicer, especially when borrowers are occasionally moved from one servicer to another. There's also been a call for allowing borrowers to switch servicers."

New interest in servicing, Kantrowitz said, "is also probably connected to President Obama's announcement on PAYER, which also mentioned servicing issues."

PAYE—the Pay-As-You-Earn program--was enhanced by an executive order signed Monday by Obama, limiting student loan payments to 10% of a borrower's income.

The task force will serve in an ongoing advisory capacity to NASFAA and the NDSLC. Two specific outcomes expected in early 2015 include:

  • A disclosure report that clearly shows different operational practices between various servicers.
  • A report to be delivered to the Department of Education and other relevant agencies containing recommendations for improving federal student loan servicing, indicating areas of deficiency in loan servicing and proposed solutions.

--Written by John Sandman for MainStreet

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