1 Session # 74 Loan Servicing Update Sue O’FlahertyCynthia BattleU.S. Department of Education
2 Session Agenda The Servicing Landscape 1The Servicing LandscapeMeasuring Performance and Managing Change in Multiple Servicer EnvironmentLooking BackLooking Forward234
3 Authority that Changed the Federal Loan Programs: BackgroundAuthority that Changed the Federal Loan Programs:Ensuring Continued Access to Student Loans Act (ECASLA)Secretary runs two main programs under ECASLA:Loan Purchase Program (PUT)ConduitHealth Care and Education Reconciliation Act of 2010 (HCERA)The Student Aid and Fiscal Responsibility (SAFRA) Act:Ended new loans under the Federal Family Education Loan (FFEL) ProgramRequired the Secretary to contract with not-for-profit servicers
4 Federal Loan Servicers: Our Federal Loan Servicers must comply with all legislative and regulatory requirements.Through the multi-servicer, borrower-centric approach schools may experience different processes and procedures offered by the servicers. Schools see many; but Borrowers see ONE!The competitive structure of the servicing contracts allows for more innovation and creativity.Together with our servicing team, we will work to serve borrowers and schools as efficiently as possible to:Educate and inform regarding the tools and options available to assist borrowers in the management of their student loansOffer multiple repayment options tailored to borrower preferences (i.e. online payments, ACH, check, etc.)Provide self-service tools for borrowers and options to receive bills and/or correspondence electronically
5 Title IV Additional Servicers Session AgendaThe Servicing Landscape1“TIVAS”Title IV Additional Servicers“TIVAS”An acronym used by FSA which stands for the Title IV Additional Servicers. In communications with schools, borrowers, and the financial aid community, FSA uses the term “federal loan servicers.”
6 The federal loan servicer is assigned upon “booking” of loan. Federal Loan Servicers:FedLoan / PHEAAGreat LakesNelnetSallie Mae* Direct Loan Servicing (ACS)COD LDEOriginationDisbursementLoan AllocationServicer AssignmentCustomer ServiceCOD = Common Origination and Disbursement SystemCODLDE : Loan Distribution Engine: interface to assign loans to the federal loan servicers.“Booked” Loan: occurs when the COD system accepts an origination record; links p-note to the record and accepts actual disbursement.The federal loan servicer is assigned upon “booking” of loan.* Direct Loan Servicing Center (ACS) Decommission
7 Loan Servicing Information – Federal Loan Servicer Team Changes Federal Loan Servicers:Loan Servicing Information – Federal Loan Servicer Team ChangesDirect Loan Servicing Center (ACS) Contract End:Brings closure to the ACS servicer’s system and contact center for handling the day-to-day servicing of its William D. Ford Federal Direct Loan (Direct Loan) Program loan portfolio.By August 29, 2013 – FSA will finish transferring the remaining Direct Loans to FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, or Sallie Mae.The contact center will remain open for a short period of time after transfers have been completed to support transition related activities.
8 Loan Servicing Information – Federal Loan Servicer Team Changes Federal Loan Servicers:Loan Servicing Information – Federal Loan Servicer Team ChangesDirect Loan Servicing Center (ACS) Contract End:Over the next several months FSA will bring closure to other functions performed by ACS (Xerox).Function Performed by ACS (Xerox)Anticipated TransitionServicing Teacher Education Assistance for College and Higher Education (TEACH) GrantsJuly 22-25, 2013Managing Civil Legal Assistance Attorney Student Loan Repayment Program (CLAARP)August 12, 2013Servicing Direct LoansOngoing through August 29, 2013Managing Direct Consolidation Loan systemTransition dates being finalized
9 Not-For-Profit Servicers Session AgendaThe Servicing Landscape1“NFP”Not-For-Profit ServicersNot-For-Profit awarded federal loan servicing contracts under the HCERA/SAFRA Not-For-Profit (NFP) Servicer Program solicitation.
10 Not-For-Profit Servicers NFP Facts:11 Not-For-Profit Servicers (Prime) implemented and awarded federal loan servicing contracts under the HCERA/SAFRA Not-For-Profit (NFP) Servicer Program solicitation.As of April 2013 (due to the Sequestration), the implementation of additional NFP’s was placed on hold.Sequestration Affect on New Not-For-Profit ServicersThe sequester provisions of the Budget Control Act of 2011 limit spending levels in the account used to fund not-for-profit (NFP) servicing operations. In order to stay within these levels, the Department will be unable to bring any additional NFP servicers on board in FY 2013. This includes NFP servicers scheduled for implementation during the remainder of the year and any servicers wishing to join existing servicing teams. The impact of a potential sequester in FY 2014 is unclear at this time but could be a factor in implementation schedules and other decisions regarding NFP activities beyond FY 2013.
11 Not-For-Profit Servicers NFP ServicerNSLDS NameNSLDS CodeAspire Resources Inc.DEPT OF ED/ASPIRE RESOURCES INC.-ISL503CornerStoneDEPT OF ED/CORNERSTONE-UHEAA502COSTEPDEPT OF ED/COSTEP510EdManageDEPT OF ED/EDMANAGE505EDGEucationDEPT OF ED/EDGEUCATION509ESA/EdfinancialDEPT OF ED/ESA-EDFINANCIAL501Granite State – GSMRDEPT OF ED/GRANITE STATE-GSMR-NH504KSA ServicingDEPT OF ED/KSA SERVICING508MOHELADEPT OF ED/MOHELA500OSLA ServicingDEPT OF ED/OSLA SERVICING506VSAC Federal LoansDEPT OF ED/VSAC SERVICING511
12 Not-For-Profit Servicers When are loans assigned to an NFP servicer?A. Once the NFP has met and demonstrated compliance with all requirements and is deemed qualified and eligible.Q. Do the NFP servicers perform under the exact same servicing guidelines as the TIVAS?Requirements for the NFP servicers and TIVAS are basically the same. However, they are not exact. For example, NFP servicers do not service newly originated loans from COD.Q. Which Direct Loan borrower accounts were transferred to the NFP’s?We transferred existing Direct Loan borrower accounts currently assigned to the Direct Loan Servicing Center (ACS / Xerox).
13 Not-For-Profit Servicers Q. How will a borrower know if his or her Direct Loans were transferred to a new NFP servicer ?When we transfer a student or parent borrower’s Direct Loans from ACS/Xerox to a NFP servicer, the new servicer will correspond with the borrower after the transferred loans have been fully loaded to the system.Additionally, ACS/Xerox notifies the borrower via they have been transferred and information about the new servicer. The notice usually occurs 1-2 days after the transfer. Q. Where will the NFPs receive their loans once all of the loans have been removed from ACS/Xerox?A. The current plan is the NFPs will get loan volume from the TIVAS.Q. How long will the NFPs participate in the program?A. The NFP contracts are for five years with a 5-year additional option.
14 Loans Transferred from: Direct Loan Servicing System (ACS /Xerox) Not-For-Profit Servicers - TransfersLoans Transferred from:Direct Loan Servicing System (ACS /Xerox)Aspire Resources Inc.CornerStoneESA/EdfinancialGranite State GSMRMOHELAOSLAVSAC Federal LoansEDManageKSA ServicingCOSTEPEDGEucation
16 Split ServicingBorrowers with federally-owned loans serviced by more than one federal loan servicer.FSA owns both Direct Loans and FFELP (PUT).(PUT: Loans made under FFELP by lenders and subsequently purchased by ED)Ongoing processes to resolve situations where a borrower’s federally-held loans are assigned to two or more federal servicers.Federally-owned and commercial loans may still be split among servicers.Consolidation sometimes viable option, but not in all circumstances.Goal: All of a borrower’s federally-owned loans will be maintained by a single servicer.
17 Session AgendaMeasuring Performance and Managing Change in Multiple Servicer Environment2
18 Servicer Performance Score Measuring PerformanceAllocations based on rankingsSurvey resultsDefault statisticsMost points for first placeOne point for last placeBorrower SatisfactionSchool SatisfactionFSA and Partner SatisfactionDefault Prevention MeasuresServicer Performance ScorePercent of new loans = percent of points
19 Oversight and Monitoring FSA provides oversight of servicer activities through monitoring to ensure that there is proper attention to customer service, operational processes, servicer requirements, and adherence to applicable regulations.Monitoring Activities include (but not limited to):Process and Operational MonitoringWeekly Issue Tracking and Resolution MeetingsProgram Compliance ReviewsCall MonitoringInternal & Financial Controls AuditsMonthly Data Reconciliation
20 Managing Change – Multi-Servicer Environment Requirement changes evolve from regulatory changes, policy updates, and new business decisions.Servicer RequirementsChanges to Business ProcessFSA Business DecisionsPolicy DecisionsNPRM’s
22 Session Agenda Looking Back Servicing Issues and Challenges BorrowersSchoolsProcess ImprovementsDecision to Standardize Process3
23 Top Borrower Issues Looking Back Servicing Issues and Challenges Transfer ProcessPayment ProcessingUnderstanding Repayment OptionsConsolidation
24 Transfer and Payment Processing Challenges: Looking BackBorrower IssuesTransfer ProcessPayment ProcessingUnderstanding RepaymentConsolidationServicing Issues and ChallengesTransfer and Payment Processing Challenges:Why did my loan get “sold” to a new servicer?Notification of transferLoan status discrepanciesPayments made to prior servicer not applied timely
25 Understanding Income-Driven Repayment Options Looking BackBorrower IssuesTransfer ProcessPayment ProcessingUnderstanding RepaymentConsolidationServicing Issues and ChallengesUnderstanding Income-Driven Repayment Optionsand Consolidation:Confusion about repayment optionsApplication and documentation requirementsSelecting PAYE for new consolidations
26 Borrowers: Key Improvements Looking BackBorrower IssuesTransfer ProcessPayment ProcessingUnderstanding RepaymentConsolidationBorrowers: Key ImprovementsRedesign of on-boarding communicationsCoordination and collaboration with previous servicerExtended call center hours for problem resolutionExperienced and dedicated resources to resolve data issuesCommunicating with borrower in the way they chooseTargeted communications and options for recently transferred borrowers (to assist with delayed payment posting)
27 Borrowers: Key Improvements Looking BackBorrower IssuesTransfer ProcessPayment ProcessingUnderstanding RepaymentConsolidationBorrowers: Key ImprovementsIncrease Customer Awareness of IDR PlansImplemented Electronic Income-Driven Application:Can be used by borrowers with ED-held loans (Direct Loans or FFEL)Can be used by borrowers with commercially held FFEL loans serviced by an entity that also services ED-held loansOn StudentLoan.govRetrieves the most recent tax information from two most recently completed tax years
28 Borrowers: Key Improvements Looking BackBorrower IssuesTransfer ProcessPayment ProcessingUnderstanding RepaymentConsolidationBorrowers: Key ImprovementsConsolidation - Operational Solution for PAYE:Borrower Selects IBR during the consolidation processThe newly-made consolidation loan is booked on the servicing system (with IBR selection)The servicer will evaluate eligibility for PAYE before communicating with the borrower regarding selectionUpdates to the LC web in process to explain revised steps
29 Top School Issues Looking Back Servicing Issues and Challenges Split ServicingStandardization among ServicersTransfer Issues – ACS DecommissionIncreasing Cohort Default Rates
30 Servicing Issues and Challenges Looking BackSchool IssuesSplit ServicingStandardization among ServicersTransfer Issues – ACS DecommissionIncreasing Cohort Default RatesServicing Issues and ChallengesBorrowers are split between multiple servicersWhy don’t the servicers do everything the same way?What are the servicers doing to help support our default prevention activities?
31 Schools : Key Improvements Looking BackSchool IssuesSplit ServicingStandardization among ServicersTransfer Issues – ACS DecommissionIncreasing Cohort Default RatesSchools : Key ImprovementsServicers have improved the counseling to push the different repayment options before deferment and forbearance optionsSome servicers have dedicated staff for different school segmentsMore financial literacy materials and supportReporting improvementsWorking with third party servicers
32 Federal Loan Servicers - Support Delinquency Support Activities:Provide outbound targeted calling campaigns along with inbound call center representatives to help borrowers become currentUtilize electronic communication methods, such as , to keep borrowers informed about account statusWork with schools to obtain current available contact information - Utilize a variety of tools to get the most current data to contact borrowers (skip tracing on delinquent accounts)Work in partnership with the school community to assist borrowers in the later stages of delinquency
33 Federal Loan Servicers - Support Delinquency Support Activities for Schools: (Examples)Default Management Training and WebinarsAnalyzing Servicer Specific Reports and ToolsLate Stage Delinquency EffortsIncorrect Data ChallengesWork the CDR data
34 Federal Loan Servicers - Support Delinquency Support Activities:Servicers work to gather feedback and find ways to partner with schools on default preventionFace-to-face meetings or conference calls with schoolsFinancial aid conference attendancePresentations at conferencesProactive phone callscommunicationReminder...Visit the Federal Loan Servicers in the exhibit hall!
35 Please send your request to: FSA – Default Prevention TeamFSA - Default Prevention Team was created to assist schools with:Developing / refining their default prevention plan.Assessing the resources schools have available in order to establish their team.Understanding default risk through the use of servicer and NSLDS reports and tools.Please send your request to:Need Assistance?Contact Us!
36 Looking BackProcess ImprovementsAll counseling products on StudentLoans.gov highlight financial literacy concepts:Entrance Counseling – required to receive a federal loanExit Counseling – required when the student graduates, leaves school or drops below half-time enrollmentFinancial Awareness Counseling – optionalCannot be required as condition for disbursementCannot replace Entrance Counseling
37 Dynamic counseling tools help the student: Looking BackDynamic counseling tools help the student:Make informed decisions about postsecondary fundingUnderstand their repayment obligation, using the students’ loan information in NSLDSDevelop a budgetEstimate monthly student loan paymentsExplore paying interest while in-school and during periods of deferment and forbearanceExplore the impacts of deferment and forbearanceLearn about income-driven repayments plan optionsIndicate a repayment plan preference (Exit Counseling)
38 (which will be passed to the servicer) Exit CounselingCompare Repayment PlansIndicate Repayment Plan preference (which will be passed to the servicer)
39 Looking BackProcess ImprovementsFinancial Awareness Counseling Tool (FACT)Provides students with financial management basics, information about current loan debt, and estimates for student loan debt levels after graduation. The tool offers five interactive tutorials covering topics ranging from managing a budget to avoiding default. Students are able to access their individual loan history and receive personal feedback that can help them better understand their financial obligations.
40 Repayment EstimatorRetrieves federal student loan information available in NSLDS.View and compare the repayment amount under each of the repayment plans.At a glance comparisons between monthly payment amounts, total amounts paid, and total interest paid
41 Looking BackDecision to Standardize Servicing ProcessesIn order to provide the best service to our customers, our servicing contracts are structured to allow for servicer creativity and innovation. However, there are times when decisions are made to standardize our servicing processes.Why the need for consistency or standardization?Standardization makes sense when differences in servicer processing cause different results to borrowers in the same circumstance.
42 Decision to Standardize Examples of Decisions to Standardize Servicing Processes Forbearance Limits Capitalization PrepaymentsIdentify Issue or ImpactDetermine ObjectivesDecision to Standardize
43 Decision to Standardize Forbearance LimitsThe Basics:A forbearance is used to postpone or reduce a borrower's monthly payment amount for a limited and specific period during which the borrower is charged interest. A general forbearance can be granted on a borrower's loan(s) for up to 1 year (12 months) at a time.After 1 year (12 months), the borrower is required to reapply to renew the forbearance.A general forbearance does not have a specified time limit.Identify Issue or ImpactDetermine ObjectivesDecision to Standardize
44 Decision to Standardize Identify Issue or ImpactDetermine ObjectivesDecision to StandardizeForbearance LimitsIdentifying the Issue:Through monitoring our loan portfolio, we discovered that some borrowers were on general forbearances for extended periods of time.Goal to ensure borrowers are adequately advised or counseled of alternative repayment options.Therefore, the forbearance process and rules were reevaluated to place a limit on a borrower request to extend forbearance, in cases where there was 36 months of consecutive forbearance.
45 Decision to Standardize Identify Issue or ImpactDetermine ObjectivesDecision to StandardizeForbearance LimitsObjectives:To establish healthy repayment habits and behaviorsCounsel borrowers on all the eligible repayment plans (with focus on the income-driven repayment options) before a forbearance grantedStandardization Rules:When a borrower has received 36 months of consecutive forbearance, the request to extend the forbearance will not be automatically granted To allow for extenuating circumstances, a forbearance may only be extended if a supervisor has reviewed and determined that efforts to place the borrower on an affordable repayment plan or deferment (if eligible) have been attempted and an extension justifiedThe justification for the extension must be noted on the borrower's account
46 Decision to Standardize Identify Issue or ImpactDetermine ObjectivesDecision to StandardizeCapitalizationBackground:All of our servicers were compliant with the rules and requirements for capitalization. The capitalization regulations provide a certain amount of discretion on the frequency of capitalization (for example, the Secretary may capitalize at point “x”).The update to our practice ensures consistency in interest capitalization between Direct Loans and federally-held Federal Family Education Loans (ED – held loan portfolio) for all the federal loan servicers.
47 Decision to Standardize Identify Issue or ImpactDetermine ObjectivesDecision to StandardizeCapitalization: RulesInterest capitalization occurs when the interest that has accrued is added to the principal balance of the loan, and interest is then calculated on the new principal balance. Our servicers have updated their systems to consistently capitalize interest at the following events:At the end of the grace periodAt the end of a deferment or forbearance period, or consecutive periods of deferment or forbearance (specifically, this covers the scenario if a borrower enters a period of back-to-back deferment or forbearance. The servicer would only capitalize once – at the end of the final status change)
48 Decision to Standardize Identify Issue or ImpactDetermine ObjectivesDecision to StandardizeCapitalization : RulesFor ICR:During periods of negative amortization, annuallyNegative amortization interest capitalizes only until principal balance is 10% greater than original principal from when borrower entered repaymentOtherwise, normal capitalization rules applyFor IBR:No longer qualifies for payments based on income (no longer has a partial financial hardship) orLeaves IBR entirelyFor Pay As You Earn:Leaves Pay As You Earn entirelyInterest capitalizes only until principal balance is 10% greater than original principal amount when borrower entered plan
49 Decision to Standardize PrepaymentsThe Basics:A prepayment is a payment that is made when no payment is due or when a payment is made for more than what is due.When a borrower makes a prepayment, the excess amount is applied first to interest, then principal.Issue: how much is the borrower billed for in the next month.Default rule – excess payments treated as intended to cover next month.Borrower can always express contrary intent.Identify Issue or ImpactDetermine ObjectivesDecision to Standardize
50 Decision to Standardize Identify Issue or ImpactDetermine ObjectivesDecision to StandardizePrepaymentsIdentifying the Issue:Borrowers mistakenly believe that treating payment as intended for next payment does not secure additional principal reductionIt does, because payment immediately applied.Identified that how borrowers provide instruction was inconsistent between servicers.Borrowers are accustomed to writing payment instruction on the check or transmittal, which servicers don’t necessarily receive.Not all servicers provide easy way for the borrower to indicate what intent is when making online payment.Not all servicers explain on the bill how to handle instructions for prepayments.
51 Decision to Standardize PrepaymentsObjectives:Make sure that all borrowers have easy ways to express intent on the handling of excess payments.Make sure that servicers interpret statements of intent consistentlyExample: “apply excess to principal” already happens.To secure maximum principal reduction and pay less interest over time, servicers recognize statements of intent consistently as evidence that excess not be used to lower next month’s bill.Identify Issue or ImpactDetermine ObjectivesDecision to Standardize
53 Looking Forward Total and Permanent Disability (TPD) Discharge Regulation Changes: Effective July 1, 2013All individuals seeking a TPD discharge will submit their discharge applications directly to the U.S. Department of Education (the Department) rather than to their individual loan holdersAn individual will be required to submit only one application to the Department to apply for a TPD dischargeAn individual can qualify for TPD discharge if:Receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, and submits a Social Security Administration (SSA) notice of award for SSDI or SSI benefits stating that the individual’s next scheduled disability review will be within 5 to 7 years from the date of the individual’s most recent SSA disability determination.An individual who provides SSA documentation is not required to obtain a separate certification from a physician on the TPD discharge application.The new TPD discharge regulations apply to TPD discharge applications received on or after July 1, TPD discharge applications received prior to July 1, 2013 will be processed under the regulations that are currently in effect.Nelnet is our Total and Permanent Disability Servicer:
54 Loan Consolidation Looking Forward Assignment of newly-made traditional consolidation loans sent to FedLoan/PHEAA and Sallie MaeBeginning August 5, we will begin assigning newly- made consolidation loans to Nelnet.Upon assignment of a borrower’s newly-made traditional consolidation loan, FedLoan Servicing (PHEAA), Sallie Mae or Nelnet will correspond directly with the borrower.
55 150% - Loss of Interest Subsidy (tentative – March 2014) Looking Forward150% - Loss of Interest Subsidy (tentative – March 2014)NSLDS will determine when enrollment results in loss of interest subsidy benefitsNSLDS will notify the federal loan servicers and the servicer will notify the borrower of interest responsibilityThe federal loan servicers will communicate the loss of interest subsidy to the borrower at the loan level
56 Federal Loan Servicers Resources – Federal Loan ServicersFederal Loan ServicersBorrower Contact #Aspire Resources Inc.CornerStoneCOSTEPDirect Loan Servicing Center (ACS)EDGEucation LoansEdManageESA/EdfinancialFedLoan Servicing (PHEAA)Granite State – GSMRGreat Lakes Educational Loan Services, Inc.KSA ServicingMOHELANelnetOSLA ServicingSallie MaeVSAC Federal Loans