1. Session # 74 Loan Servicing Update
Sue O’Flaherty
Cynthia Battle
U.S. Department of Education

2. Session Agenda The Servicing Landscape1
The Servicing Landscape
Measuring Performance and Managing Change in Multiple Servicer Environment
Looking Back
Looking Forward 2 3 4

3. Authority that Changed the Federal Loan Programs:
Background
Authority 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)
Conduit
Health 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) Program
Required 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 loans
Offer 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 Agenda
The Servicing Landscape 1
“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 / PHEAA
Great Lakes
Nelnet
Sallie Mae
* Direct Loan Servicing (ACS)
COD LDE
Origination
Disbursement
Loan Allocation
Servicer Assignment
Customer Service
COD = Common Origination and Disbursement System
COD
LDE : 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 Changes
Direct 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 Changes
Direct 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 Transition
Servicing Teacher Education Assistance for College and Higher Education (TEACH) Grants
July 22-25, 2013
Managing Civil Legal Assistance Attorney Student Loan Repayment Program (CLAARP)
August 12, 2013
Servicing Direct Loans
Ongoing through August 29, 2013
Managing Direct Consolidation Loan system
Transition dates being finalized

9. Not-For-Profit Servicers
Session Agenda
The Servicing Landscape 1
“NFP”
Not-For-Profit Servicers
Not-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 Servicers
The 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 Servicer
NSLDS Name
NSLDS Code
Aspire Resources Inc.
DEPT OF ED/ASPIRE RESOURCES INC.-ISL
503
CornerStone
DEPT OF ED/CORNERSTONE-UHEAA
502
COSTEP
DEPT OF ED/COSTEP
510
EdManage
DEPT OF ED/EDMANAGE
505
EDGEucation
DEPT OF ED/EDGEUCATION
509
ESA/Edfinancial
DEPT OF ED/ESA-EDFINANCIAL
501
Granite State – GSMR
DEPT OF ED/GRANITE STATE-GSMR-NH
504
KSA Servicing
DEPT OF ED/KSA SERVICING
508
MOHELA
DEPT OF ED/MOHELA
500
OSLA Servicing
DEPT OF ED/OSLA SERVICING
506
VSAC Federal Loans
DEPT OF ED/VSAC SERVICING
511

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 - Transfers
Loans Transferred from:
Direct Loan Servicing System (ACS /Xerox)
Aspire Resources Inc.
CornerStone
ESA/
Edfinancial
Granite State GSMR
MOHELA
OSLA
VSAC Federal Loans
EDManage
KSA Servicing
COSTEP
EDGEucation

15. Federal Loan Servicers:
Servicing Platform Partnerships
FedLoan / PHEAA
Great Lakes
Nelnet
Sallie Mae
FedLoan (PHEAA)
MOHELA
Cornerstone
Aspire
Nelnet
ESA/Edfinancial
Granite State
OSLA
VSAC

16. Split Servicing
Borrowers 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 Agenda
Measuring Performance and Managing Change in Multiple Servicer Environment 2

18. Servicer Performance Score
Measuring Performance
Allocations based on rankings
Survey results
Default statistics
Most points for first place
One point for last place
Borrower Satisfaction
School Satisfaction
FSA and Partner Satisfaction
Default Prevention Measures
Servicer Performance Score
Percent 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 Monitoring
Weekly Issue Tracking and Resolution Meetings
Program Compliance Reviews
Call Monitoring
Internal & Financial Controls Audits
Monthly Data Reconciliation

20. Managing Change – Multi-Servicer Environment
Requirement changes evolve from regulatory changes, policy updates, and new business decisions.
Servicer Requirements
Changes to Business Process
FSA Business Decisions
Policy Decisions
NPRM’s

21. Managing Change – Multi-Servicer Environment
Remember … Changes made to servicing platforms (systems)
FedLoan / PHEAA
Great Lakes
Nelnet
Sallie Mae
FedLoan (PHEAA)
MOHELA
Cornerstone
Aspire
Servicer Requirements
Nelnet
ESA/Edfinancial
Granite State
OSLA
VSAC
Campus Partner
EdManage
COSTEP
KSA
EDGEucation

22. Session Agenda Looking Back Servicing Issues and Challenges
Borrowers
Schools
Process Improvements
Decision to Standardize Process 3

23. Top Borrower Issues Looking Back Servicing Issues and Challenges
Transfer Process
Payment Processing
Understanding Repayment Options
Consolidation

24. Transfer and Payment Processing Challenges:
Looking Back
Borrower Issues
Transfer Process
Payment Processing
Understanding Repayment
Consolidation
Servicing Issues and Challenges
Transfer and Payment Processing Challenges:
Why did my loan get “sold” to a new servicer?
Notification of transfer
Loan status discrepancies
Payments made to prior servicer not applied timely

25. Understanding Income-Driven Repayment Options
Looking Back
Borrower Issues
Transfer Process
Payment Processing
Understanding Repayment
Consolidation
Servicing Issues and Challenges
Understanding Income-Driven Repayment Options
and Consolidation:
Confusion about repayment options
Application and documentation requirements
Selecting PAYE for new consolidations

26. Borrowers: Key Improvements
Looking Back
Borrower Issues
Transfer Process
Payment Processing
Understanding Repayment
Consolidation
Borrowers: Key Improvements
Redesign of on-boarding communications
Coordination and collaboration with previous servicer
Extended call center hours for problem resolution
Experienced and dedicated resources to resolve data issues
Communicating with borrower in the way they choose
Targeted communications and options for recently transferred borrowers (to assist with delayed payment posting)

27. Borrowers: Key Improvements
Looking Back
Borrower Issues
Transfer Process
Payment Processing
Understanding Repayment
Consolidation
Borrowers: Key Improvements
Increase Customer Awareness of IDR Plans
Implemented 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 loans
On StudentLoan.gov
Retrieves the most recent tax information from two most recently completed tax years

28. Borrowers: Key Improvements
Looking Back
Borrower Issues
Transfer Process
Payment Processing
Understanding Repayment
Consolidation
Borrowers: Key Improvements
Consolidation - Operational Solution for PAYE:
Borrower Selects IBR during the consolidation process
The 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 selection
Updates to the LC web in process to explain revised steps

29. Top School Issues Looking Back Servicing Issues and Challenges
Split Servicing
Standardization among Servicers
Transfer Issues – ACS Decommission
Increasing Cohort Default Rates

30. Servicing Issues and Challenges
Looking Back
School Issues
Split Servicing
Standardization among Servicers
Transfer Issues – ACS Decommission
Increasing Cohort Default Rates
Servicing Issues and Challenges
Borrowers are split between multiple servicers
Why 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 Back
School Issues
Split Servicing
Standardization among Servicers
Transfer Issues – ACS Decommission
Increasing Cohort Default Rates
Schools : Key Improvements
Servicers have improved the counseling to push the different repayment options before deferment and forbearance options
Some servicers have dedicated staff for different school segments
More financial literacy materials and support
Reporting improvements
Working 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 current
Utilize electronic communication methods, such as , to keep borrowers informed about account status
Work 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 Webinars
Analyzing Servicer Specific Reports and Tools
Late Stage Delinquency Efforts
Incorrect Data Challenges
Work 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 prevention
Face-to-face meetings or conference calls with schools
Financial aid conference attendance
Presentations at conferences
Proactive phone calls
communication
Reminder...
Visit the Federal Loan Servicers in the exhibit hall!

35. Please send your request to:
FSA – Default Prevention Team
FSA - 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 Back
Process Improvements
All counseling products on StudentLoans.gov highlight financial literacy concepts:
Entrance Counseling – required to receive a federal loan
Exit Counseling – required when the student graduates, leaves school or drops below half-time enrollment
Financial Awareness Counseling – optional
Cannot be required as condition for disbursement
Cannot replace Entrance Counseling

37. Dynamic counseling tools help the student:
Looking Back
Dynamic counseling tools help the student:
Make informed decisions about postsecondary funding
Understand their repayment obligation, using the students’ loan information in NSLDS
Develop a budget
Estimate monthly student loan payments
Explore paying interest while in-school and during periods of deferment and forbearance
Explore the impacts of deferment and forbearance
Learn about income-driven repayments plan options
Indicate a repayment plan preference (Exit Counseling)

38. (which will be passed to the servicer)
Exit Counseling
Compare Repayment Plans
Indicate Repayment Plan preference 
(which will be passed to the servicer)

39. Looking Back
Process Improvements
Financial 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 Estimator
Retrieves 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 Back
Decision to Standardize Servicing Processes
In 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 Prepayments
Identify Issue or Impact
Determine Objectives
Decision to Standardize

43. Decision to Standardize
Forbearance Limits
The 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 Impact
Determine Objectives
Decision to Standardize

44. Decision to Standardize
Identify Issue or Impact
Determine Objectives
Decision to Standardize
Forbearance Limits
Identifying 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 Impact
Determine Objectives
Decision to Standardize
Forbearance Limits
Objectives:
To establish healthy repayment habits and behaviors
Counsel borrowers on all the eligible repayment plans (with focus on the income-driven repayment options) before a forbearance granted
Standardization 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 justified
The justification for the extension must be noted on the borrower's account

46. Decision to Standardize
Identify Issue or Impact
Determine Objectives
Decision to Standardize
Capitalization
Background:
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 Impact
Determine Objectives
Decision to Standardize
Capitalization: Rules
Interest 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 period
At 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 Impact
Determine Objectives
Decision to Standardize
Capitalization : Rules
For ICR:
During periods of negative amortization, annually
Negative amortization interest capitalizes only until principal balance is 10% greater than original principal from when borrower entered repayment
Otherwise, normal capitalization rules apply
For IBR:
No longer qualifies for payments based on income (no longer has a partial financial hardship) or
Leaves IBR entirely
For Pay As You Earn:
Leaves Pay As You Earn entirely
Interest capitalizes only until principal balance is 10% greater than original principal amount when borrower entered plan

49. Decision to Standardize
Prepayments
The 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 Impact
Determine Objectives
Decision to Standardize

50. Decision to Standardize
Identify Issue or Impact
Determine Objectives
Decision to Standardize
Prepayments
Identifying the Issue:
Borrowers mistakenly believe that treating payment as intended for next payment does not secure additional principal reduction
It 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
Prepayments
Objectives:
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 consistently
Example: “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 Impact
Determine Objectives
Decision to Standardize

52. Session Agenda
Looking Forward
Future Changes 4

53. Looking Forward Total and Permanent Disability (TPD) Discharge
Regulation Changes: Effective July 1, 2013
All 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 holders
An individual will be required to submit only one application to the Department to apply for a TPD discharge
An 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 Mae
Beginning 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 Forward
150% - Loss of Interest Subsidy (tentative – March 2014)
NSLDS will determine when enrollment results in loss of interest subsidy benefits
NSLDS will notify the federal loan servicers and the servicer will notify the borrower of interest responsibility
The federal loan servicers will communicate the loss of interest subsidy to the borrower at the loan level

56. Federal Loan Servicers
Resources – Federal Loan Servicers
Federal Loan Servicers
Borrower Contact #
Aspire Resources Inc.
CornerStone
COSTEP
Direct Loan Servicing Center (ACS)
EDGEucation Loans
EdManage
ESA/Edfinancial
FedLoan Servicing (PHEAA)
Granite State – GSMR
Great Lakes Educational Loan Services, Inc.
KSA Servicing
MOHELA
Nelnet
OSLA Servicing
Sallie Mae
VSAC Federal Loans

57. Thank You!

58. E-mail: Sue.O'Flaherty@ed.gov
FSA Contact Information
4/19/2017
Sue O’Flaherty
Phone:
Cynthia Battle
Phone: