Download - Session # 74 Loan Servicing Update

Session # 74

Loan Servicing Update

Sue O’FlahertyCynthia Battle

U.S. Department of Education

Session Agenda

The Servicing Landscape

Measuring Performance and Managing Change in Multiple Servicer Environment

Looking Back

Looking Forward

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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

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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

Federal Loan Servicers:

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Session Agenda


“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.”

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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.


FedLoan / PHEAA

Great Lakes

Nelnet

Sallie Mae

* Direct Loan Servicing (ACS)

* Direct Loan Servicing Center (ACS) Decommission

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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.

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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

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Session Agenda


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Not-For-Profit awarded federal loan servicing contracts under the HCERA/SAFRA Not-For-Profit (NFP) Servicer Program solicitation.

“NFP” Not-For-Profit Servicers

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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

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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


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Q. 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?

R. 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?

S. We transferred existing Direct Loan borrower accounts currently assigned to the Direct Loan Servicing Center (ACS / Xerox).


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Q. How will a borrower know if his or her Direct Loans were transferred to a new NFP servicer ?

A. 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.


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Loans Transferred from:

Direct Loan Servicing

System (ACS /Xerox)

Aspire Resources

Inc.

CornerStone

ESA/Edfinancial

Granite State GSMR

MOHELAOSLA VSAC Federal

Loans

EDManage

KSA Servicing

COSTEP

EDGEucation

Not-For-Profit Servicers - Transfers

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FedLoan / PHEAA

Great Lakes

Nelnet

Sallie Mae

Servicing Platform Partnerships FedLoan (PHEAA) MOHELA Cornerstone Aspire

Nelnet ESA/Edfinancial Granite State OSLA VSAC

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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.

Split Servicing

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Session Agenda

Measuring Performance and

Managing Change in Multiple Servicer

Environment

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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

Measuring Performance

Percent of new loans = percent of points

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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

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Managing Change – Multi-Servicer Environment

Requirement changes evolve from regulatory changes, policy updates, and new business decisions.

Changes to Business Process

FSA Business Decisions

Policy Decisions

NPRM’s

Servicer Requirements

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FedLoan / PHEAA

Great Lakes

Nelnet

Sallie Mae

Remember … Changes made to servicing platforms (systems)

FedLoan (PHEAA) MOHELA Cornerstone Aspire

Nelnet ESA/Edfinancial Granite State OSLA VSAC

Servicer Requirements

Managing Change – Multi-Servicer Environment

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Campus Partner EdManage COSTEP KSA EDGEucation

Session Agenda

Looking Back Servicing Issues and Challenges

Borrowers Schools

Process Improvements Decision to Standardize Process

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Looking Back

Servicing Issues and Challenges

Top Borrower

Issues

• Transfer Process• Payment Processing• Understanding Repayment Options• Consolidation

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Looking Back

Servicing Issues and Challenges Borrower Issue

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• Transfer Process• Payment Processing• Understanding Repayment• Consolidation

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

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Looking Back


Understanding Income-Driven Repayment Options and Consolidation:

Confusion about repayment options

Application and documentation requirements

Selecting PAYE for new consolidations

Borrower

Issues


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Looking Back

Borrowers: Key Improvements Borrower Issue

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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)

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Looking Back

Borrowers: Key Improvements Borrower Issue

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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

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Looking Back

Borrowers: Key Improvements Borrower

Issues


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

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Looking Back


Top School Issues

• Split Servicing • Standardization among Servicers• Transfer Issues – ACS Decommission• Increasing Cohort Default Rates

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Looking Back

Servicing Issues and Challenges School

Issues


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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?

Looking Back

Schools : Key Improvements

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School

Issues


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

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

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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

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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

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Reminder...Visit the Federal Loan Servicers in the exhibit hall!

Need Assistance?

FSA – Default Prevention Team

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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:

[email protected]

Contact Us!

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

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Looking Back

Process Improvements

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)

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Looking Back

Dynamic counseling tools help the student:

Compare Repayment Plans

Indicate Repayment Plan preference

(which will be passed to the servicer)

Exit Counseling

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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.

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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

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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.

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Decision to Standardize

Examples of Decisions to Standardize Servicing Processes

Forbearance Limits Capitalization Prepayments

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Identify Issue or Impact

Determine Objectives


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.

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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.

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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

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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.




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)

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Capitalization : Rules

For ICR:o During periods of negative amortization, annually o Negative amortization interest capitalizes only until principal balance is 10%

greater than original principal from when borrower entered repaymento Otherwise, normal capitalization rules apply

For IBR:o No longer qualifies for payments based on income (no longer has a partial

financial hardship) oro Leaves IBR entirely

For Pay As You Earn:o No longer qualifies for payments based on income (no longer has a partial

financial hardship) oro Leaves Pay As You Earn entirelyo Interest capitalizes only until principal balance is 10% greater than original

principal amount when borrower entered plan

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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.




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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.




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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.




Session Agenda

Looking Forward Future Changes

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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

Looking Forward

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http://www.disabilitydischarge.com/

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Loan Consolidation 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.

Looking Forward

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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

Looking Forward

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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

Resources – Federal Loan Servicers

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Thank You!

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FSA Contact Information

Sue O’FlahertyPhone: 202-377-3393E-mail: Sue.O'[email protected]

Cynthia BattlePhone: 202-377-3261E-mail: [email protected]

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Download - Session # 74 Loan Servicing Update

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