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

Session Agenda The Servicing Landscape 1 The Servicing Landscape Measuring Performance and Managing Change in Multiple Servicer Environment Looking Back Looking Forward 2 3 4

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

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

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.”

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

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.

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

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.

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.

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

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).

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 e-mail 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.

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

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

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.

Session Agenda Measuring Performance and Managing Change in Multiple Servicer Environment 2

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

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

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

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

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

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

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

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

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)

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

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

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

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?

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

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 e-mail, 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

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

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 E-mail communication Reminder... Visit the Federal Loan Servicers in the exhibit hall!

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: defaultpreventionassistance@ed.gov Need Assistance? Contact Us!

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

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)

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

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.

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  

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.

Decision to Standardize Examples of Decisions to Standardize Servicing Processes Forbearance Limits Capitalization Prepayments Identify Issue or Impact Determine Objectives Decision to Standardize

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

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.  

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

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.

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)

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

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

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.

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

Session Agenda Looking Forward Future Changes 4

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, 2013. 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: www.disabilitydischarge.com

Loan Consolidation Looking Forward Assignment of newly-made traditional consolidation loans sent to FedLoan/PHEAA and Sallie Mae Beginning August 5, 2013 - 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.

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

Federal Loan Servicers Resources – Federal Loan Servicers Federal Loan Servicers Borrower Contact # Aspire Resources Inc. 1-855-475-3335 CornerStone 1-800-663-1662 COSTEP 1-877-292-8639 Direct Loan Servicing Center (ACS) 1-800-848-0979 EDGEucation Loans 1-877-292-7470 EdManage 1-855-479-0490 ESA/Edfinancial 1-855-337-6884 FedLoan Servicing (PHEAA) 1-800-699-2908 Granite State – GSMR 1-888-556-0022 Great Lakes Educational Loan Services, Inc. 1-800-236-4300 KSA Servicing 1-877-292-4825 MOHELA 1-888-866-4352 Nelnet 1-888-486-4722 OSLA Servicing 1-866-264-9762 Sallie Mae 1-800-722-1300 VSAC Federal Loans 1-888-932-5626

Thank You!

E-mail: Sue.O'Flaherty@ed.gov FSA Contact Information 4/19/2017 Sue O’Flaherty Phone: 202-377-3393 E-mail: Sue.O'Flaherty@ed.gov Cynthia Battle Phone: 202-377-3261 E-mail: Cynthia.Battle@ed.gov