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U.S. Department of Education Announces Requirements for New Federal Loan Servicing System

The U.S. Department of Education today announced an important step forward in the Obama Administration’s efforts to strengthen the student loan servicing experience for borrowers. Federal Student Aid issued the next phase of its procurement to acquire a single servicing platform to support the management of loan repayment for the more than 30 million Americans with student loan debt serviced by the Department of Education. The solicitation details the specific requirements the selected contractor must fulfill when developing the servicing platform.

“Borrowers deserve access to the right information from their servicers as they make important decisions about managing loan repayment, ultimately paying off their debt and climbing the economic ladder,” said U.S. Secretary of Education John B. King Jr. “Today’s announcement builds on our ongoing effort to simplify and improve the borrower experience.”

In April, the Department outlined a new vision for federal loan servicing. That vision included the President’s call for a system that allows borrowers to navigate loan repayment with ease by logging into a single web portal to access information, make payments, apply for benefits, and manage their account. Under the procurement, one entity will be selected to provide this single servicing platform, which will perform these core functions and work with select partners to service loans. The new system will also more accurately measure and disclose how the system is performing. In July, the Department, working closely with the U.S. Treasury Department and the Consumer Financial Protection Bureau, wrote a memo to Federal Student Aid that detailed a series of enhanced protections and customer service standards to strengthen student loan servicing and inform the ongoing procurement process.

The procurement requirements outlined in the solicitation reflect the Department’s plan to implement those enhanced protections and standards, and will provide for:

  • Improved oversight of vendors;
  • Increased cost efficiencies and loan allocation metrics that reward customer service partners for good outcomes for borrowers – managing repayment and avoiding default;
  • Improved communications to borrowers, both spoken and in writing, about their loans, account features, and the options available to them;
  • Uniform, Department of Education branding and a common borrower experience to avoid borrower confusion;
  • An integrated complaints process linked to the Federal Student Aid Feedback System to ensure vendor accountability;
  • The collection and release of data to the public to increase transparency of vendor performance.

Last March, as part of the Student Aid Bill of Rights, President Obama directed several federal agencies to improve student loan servicing and help make paying for higher education an easier and fairer experience for millions of Americans. Last fall, the Departments of Education and the Treasury, and the Consumer Financial Protection Bureau issued a Joint Statement of Principles on student loan servicing calling for enhanced protections and improved customer service standards.

The new loan serving system will lay the foundation for upcoming contract actions. The July servicing memo has been updated to further clarify that customer service providers should be allocated borrower accounts that reside on the single platform based on performance as measured against specified outcome measures. Upon full implementation of our vision, no single vendor will be responsible for performing every aspect of student loan servicing for all loans.

In response to the Phase I solicitation, Federal Student Aid received five proposals. Three firms were selected to participate in Phase II of the procurement. The Department anticipates the servicing system contract will be awarded by February 2017.

When available, a public version of the detailed procurement requirements will be posted here.