federal loan servicing update

Sue O’Flaherty | Dec. 2013U.S. Department of Education

2013 FSA Training Conference for Financial Aid Professionals

Federal Loan Servicing Update

Session # 7

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Meet the Servicer PanelMeet the Servicer Panel

Dan WeigleDan Weigle [email protected]

Brett LindquistBrett Lindquist [email protected]

Jim HarrisJim [email protected]

Bob Leary Bob Leary [email protected]

Servicing Team Updates

Looking BackoProgram UpdatesoChallenges and Improvements

Delinquency Support Activities

Looking Forward o On the Horizon

AgendaAgenda

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* Direct Loan Servicing Center (ACS) Decommissioned* Direct Loan Servicing Center (ACS) Decommissioned

Loan Servicing UpdatesLoan Servicing Updates Direct Loan Servicing Center (ACS)

closed beginning October 1, 2013.

Effective November 16, 2013, all Direct Loan Servicing Center support and messaging was no longer available.

The Direct Loan Servicing Center phone number, e-mail address, and website are inaccessible.

A borrower must make payments to and communicate solely with his or her new federal loan servicer.

A borrower can access NSLDS to identify the servicer to which the borrower's loans have been transferred.

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To seed the NFP servicers, we transferred borrower accounts that were assigned to the Direct Loan Servicing Center (ACS).

When we transfer a student or parent borrower to a servicer, the new servicer will correspond with the borrower after the transferred loans have been fully loaded to the system.

As of April 2013 (due to the Sequestration), the implementation of additional NFP’s was placed on hold.

All Direct Loan accounts previously assigned to COSTEP, EDGEucation Loans, EdManage, and KSA Servicing were successfully transferred to appropriate NFP servicer partner by the end of September 2013.

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Loan Servicing Updates – Loan Servicing Updates – Not-For-Profit (NFP)Not-For-Profit (NFP)

Federal Loan Servicers Federal Loan Servicers • All Federal Loan Servicers must comply with 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!

• Together with our servicers, we work to serve borrowers and schools as efficiently as possible to:

• Educate and inform borrowers of the tools and options available to assist 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.

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Loan Servicing Updates – Loan Servicing Updates – Split ServicingSplit Servicing

Borrowers with federally-owned loans serviced by more than one federal loan servicer.

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.

PSLF Loans are transferred to FedLoan/PHEAA.

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Loan Servicing Updates – Loan Servicing Updates – Split ServicingSplit Servicing

October – December 2013October – December 2013During the October – December 2013 timeframe, we plan to transfer accounts of borrowers whose loans are split across FedLoan, Great Lakes, Nelnet, and Sallie Mae.

We determine the servicer to which a borrower’s account (or accounts) will be based on the number of federally-owned loans each servicer services for the borrower or, if the number of loans is equal across servicers, the total dollar amount of the loans.

The borrower’s accounts will be transferred to the servicer that services the most loans or the highest total dollar amount.

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Loan Servicing Updates – Loan Servicing Updates – Repayment CampaignRepayment CampaignThe Department launches an The Department launches an

Income-Driven Student Loan Repayment CampaignIncome-Driven Student Loan Repayment Campaign

President Obama called for the Department to do more to ensure that all federal student loan borrowers are aware of affordable repayment options.

Beginning in November, we contacted borrowers to ensure they have the information they need to choose the right repayment option for them.

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Loan Servicing Updates – Loan Servicing Updates – Repayment CampaignRepayment CampaignIncome-Driven Student Loan Repayment Campaign (cont.)Income-Driven Student Loan Repayment Campaign (cont.)

The campaign targets borrowers: whose grace periods will end soon borrowers who have fallen behind on their student loan payments borrowers with higher-than-average debts, and borrowers in deferment or forbearance because of financial

hardship or unemploymentThe e-mails, which will be distributed through mid-December, will reach approximately 3.5 million federal student loan borrowers

Borrowers will be prompted to access resources designed to educate them on repayment options, apply for an income-driven repayment plan, or contact their federal student loan servicer for additional information

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Loan Servicing Updates – Loan Servicing Updates – Repayment Plan PreferenceRepayment Plan Preference

January 2014: January 2014:

Repayment plan preference information provides loan servicers with borrowers' repayment plan preference information gathered during Exit Counseling sessions on the StudentLoans.gov website. At the end of the Exit Counseling module on StudentLoans.gov, a borrower is provided with preliminary repayment plan eligibility information and estimated repayment amounts. The preliminary information is based on the borrower’s loan information in the National Student Loan Data System (NSLDS) and offers the borrower the opportunity to select the repayment.

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On January 1, 2014, we will begin sharing the repayment plan preference information with members of our federal loan servicing team and Federal Family Education Loan (FFEL) Program lenders, lender servicers, and guaranty agencies through updated NSLDS loan exit counseling completion reports.

The repayment plan preference information is being provided to loan servicers for informational purposes.

Loan servicers are encouraged, but not required, to use this information to facilitate actual repayment plan selection and better serve borrowers.

Loan Servicing Updates – Loan Servicing Updates – Repayment Plan PreferenceRepayment Plan Preference

FedLoan (PHEAA)FedLoan (PHEAA) MOHELAMOHELA CornerstoneCornerstone AspireAspire

Nelnet Nelnet ESA/EdfinancialESA/Edfinancial Granite StateGranite State OSLAOSLA VSAC VSAC

Managing Change – Multi-Servicer EnvironmentManaging Change – Multi-Servicer Environment

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

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? 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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Managing Change - Decision to Standardize Managing Change - Decision to Standardize

Forbearance Limits Forbearance Limits

The Basics: 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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Identifying the Issue: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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Objectives: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: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 Capitalization

Background: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 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 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).

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Capitalization : RulesCapitalization : Rules For ICR: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 repayment

o Otherwise, normal capitalization rules apply For IBR:For IBR:

o No longer qualifies for payments based on income (no longer has a partial financial hardship) or

o Leaves IBR entirely For Pay As You Earn:For Pay As You Earn:

o No longer qualifies for payments based on income (no longer has a partial financial hardship) or

o Leaves Pay As You Earn entirelyo Interest capitalizes only until principal balance is 10% greater than

original principal amount when borrower entered plan 20


Looking Back – Program UpdatesLooking Back – Program Updates

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Presented by: Jim HarrisPresented by: Jim Harris

Regulation Changes: Became effective July 1, 2013Regulation Changes: Became effective July 1, 2013

All individuals seeking a TPD discharge will submit their discharge applications directly to the U.S. Department of Education 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

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Looking Back – Looking Back – Total & Permanent Disability (TPD)Total & Permanent Disability (TPD)

Regulation Changes: Became effective July 1, 2013Regulation Changes: Became effective July 1, 2013

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 by a loan holder prior to July 1, 2013 will be processed under the regulations that were in effect at that time.

Nelnet: Total and Permanent Disability Servicer: Nelnet: Total and Permanent Disability Servicer: www.disabilitydischarge.com

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Looking Back – Looking Back – Total and Permanent Disability Total and Permanent Disability

http://www.disabilitydischarge.com/


Program Updates

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Presented by: Dan WeiglePresented by: Dan Weigle

The Public Service Loan Forgiveness Program allows eligible borrowers to cancel the remaining balance of their Direct Loans after serving full-time at a public service organization for at least 10 years while making 120 qualifying monthly payments after October 1, 2007.

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Looking Back – Looking Back – Public Service Loan ForgivenessPublic Service Loan Forgiveness

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In November 2011, FedLoan Servicing FedLoan Servicing was awarded the contract to service borrowers eligible for Public Service Loan Forgiveness (PSLF).

FedLoan Servicing responsibilities include:•Customer Support•Processing applications and forms related to PSLF eligibility•Tracking qualifying payments for PSLF

Customer Support•Trained a specialized customer service and processing team•Established a dedicated, toll-free number, 1-855-265-4038•Provided customer service representatives available from Monday through Thursday 8:00 a.m. – 11:00 p.m. (ET). Friday 8:00 a.m. – 9:00 p.m. (ET)•Added a dedicated site, MyFedLoan.org/pslf, and form for PSLF•Updated our borrower portal to assist in tracking eligible payments

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http://www.myfedloan.org/pslf

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Eligibility Requirements:Eligibility Requirements:

Qualified employment with a public service organization Working full time Eligible loans (Direct Loans only) Eligible Repayment Plan (Income-Driven Repayment,

Standard) Qualifying payments


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Review of PSLF ProcessingReview of PSLF Processing


Payment Tracking for Eligible BorrowersPayment Tracking for Eligible Borrowers

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PSLF - Frequently Asked QuestionsPSLF - Frequently Asked Questions• Are all federally-owned loans eligible for PSLF?Are all federally-owned loans eligible for PSLF?

No, it is important to note that, while the federally-owned FFELP PUT loans will be moved to FedLoan Servicing for a borrower with qualifying employment, only Direct Loans, including Direct Consolidation Loans, are eligible for forgiveness. Payments made to FedLoan Servicing on non-eligible loan types will not be tracked.

• Will the borrower’s commercially-held loan volume be transferred to Will the borrower’s commercially-held loan volume be transferred to FedLoan Servicing?FedLoan Servicing?

No, they will remain with their commercial servicer.• Under IBR, ICR, and Pay As You Earn the scheduled payment for a Under IBR, ICR, and Pay As You Earn the scheduled payment for a

borrower could be $0. Does this payment count as towards PSLF?borrower could be $0. Does this payment count as towards PSLF? Yes, this is considered a qualifying payment under that repayment plan.

• Are the 120 full, monthly payments required to be consecutive?Are the 120 full, monthly payments required to be consecutive? No, they do not need to be consecutive.

• Are loan amounts forgiven for PSLF considered income for tax purposes?Are loan amounts forgiven for PSLF considered income for tax purposes? No, they are not considered income.

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Presented by: Dan WeiglePresented by: Dan Weigle

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TEACH Servicing TEACH Servicing

July 2013 servicing of TEACH Grants was transitioned to FedLoan Servicing

Existing TEACH Grant recipients and TEACH Grants that were converted to unsubsidized loans were transferred to FedLoan Servicing

TEACH Grant recipients will have Direct Loans serviced at FedLoan Servicing

No impact for schools to the awarding process of TEACH Grants

Looking Back – Looking Back – TEACHTEACH

All existing and new TEACH Grant recipients received communication from FedLoan regarding the transfer of their grant and/or loans.

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Looking Back – Looking Back – TEACHTEACH

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FedLoan Servicing responsibilities include:FedLoan Servicing responsibilities include:Customer SupportProcessing applications and forms related to the service obligationMonitor and track recipients progress toward the required service

obligation

Customer SupportCustomer SupportTrained a specialized customer service and processing teamCustomer service representatives available from Monday through

Friday 8:00 a.m. – 9:00 p.m. (ET)Added a dedicated site, MyFedLoan.org/TEACH, for TEACH recipientsUpdated our borrower portal to assist in tracking their service obligation

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Looking Back – Looking Back – TEACH GrantsTEACH Grants

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http://www.myfedloan.org/TEACH

Dedicated SiteDedicated Site MyFedLoan.org/TEACH

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TEACH Grant TimelineTEACH Grant Timeline

The TEACH Grant Timeline outlines the recipients projected milestones and allows recipients to complete self-service options such as:•Providing certification•Apply for suspension•Convert TEACH Grants to loans •Makes recipients aware of potential interest accrual if converted to a loan

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Looking BackLooking BackChallenges and ImprovementsChallenges and Improvements

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Presented by: Brett LindquistPresented by: Brett Lindquist

Looking BackLooking Back - - Servicing Issues and Challenges Servicing Issues and Challenges

Servicer TransfersServicer Transfers

Description “Why did my loan get sold to a new servicer?” Loan status discrepancies Payments made to prior servicer not applied timely Repayment options confusion

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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 Targeted communications and options for recently transferred

borrowers (to assist with delayed payment posting)

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Looking Back - Looking Back - Servicing Key Improvements Servicing Key Improvements

Servicer Transfers Servicer Transfers

Increased Customer Awareness of IDR Plans

Implemented Electronic Income-Driven Application at StudentLoans.gov

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

Retrieves the most recent tax information from two most recently completed tax years

Application & income information sent to servicer for processing

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Repayment Options Repayment Options


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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 for borrowers and schools

Looking Back Looking Back – Schools Schools

Repayment Options Repayment Options


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Service Member Information Service Member Information

Increased efforts to promote awareness of service member benefits such as SCRA Interest rate cap and Military Service Deferment

Revised portal/correspondence

Phone center counseling

TIVAS collaborated to create newbrochure for service members to help them understand all their benefits

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Looking Back - Looking Back - Schools Schools

Weekly Updates By Federal Servicers

Low Error Rates

NSLDS Integrity Projects

NSLDS Delinquency/Default Reports that cover all serviced loans

Ensure Servicers Update NSLDS Timely & AccuratelyEnsure Servicers Update NSLDS Timely & Accurately

NSLDS Accuracy NSLDS Accuracy

Delinquency Support Delinquency Support ActivitiesActivities

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Presented by: Bob Leary Presented by: Bob Leary

Delinquency Support ActivitiesDelinquency Support Activities Provide outbound targeted contact campaigns along with

inbound call center representatives to help borrowers become current

Utilize electronic communication methods, such as e-mail, chat, messaging, text to keep borrowers informed about account status, and offer to help

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 all stages of delinquency

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Examples of activities servicers are doing:Examples of activities servicers are doing:

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Delinquency Support ActivitiesDelinquency Support Activities

Challenge:Challenge: Servicer CDR Support ActivitiesServicer CDR Support Activities

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Servicers follow standard CDR guidelines and work closely with FSA

Provide support to schools investigating rates

Process challenges and appeals via eCDR



The servicers work to gather feedback and find ways to partner with schools on default prevention

Presentations at conferences

Default Management Training and Webinars

School focused websites

Proactive phone calls

E-mail communication

Analyzing Servicer Specific Reports and Tools

Late-Stage Delinquency Efforts

Supports & Processes CDR Documents requests, Challenges and Appeals

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Servicing Team Updates

Looking Backo Program Updateso Challenges and Improvements

Delinquency Support Activities

Looking Forward o Implementation of 150% - Loss of Interest Subsidyo Loan Consolidation

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150% - Loss of Interest Subsidy 150% - Loss of Interest Subsidy (tentative – March 2014) (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 – Looking Forward – 150% - Loss of Subsidy150% - Loss of Subsidy

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Loan Consolidation - Loan Consolidation - TODAYTODAY

Direct Loan Consolidation Center sends loans to FedLoan Servicing, Nelnet, and Sallie Mae

Borrowers can apply electronically at http.loanconsolidations.ed.gov

Workaround process for borrowers wanting to repay on Pay As You Earn

Looking Forward – Loan Looking Forward – Loan Consolidation Consolidation

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““New” Loan ConsolidationNew” Loan Consolidation

Coming January 2014, Phase One….. The updated Direct Loan Consolidation Application and

Promissory will be made available on StudentLoans.gov Borrowers with non-defaulted federal loans can:

Submit applications electronically Confirm loans for consolidation Choose a consolidation servicer Select a repayment plan and submit an Income-Driven

Repayment e-application if desired Borrowers with defaulted federal loans will use existing Loan

Consolidation Process until Phase Two implementation Spring 2014


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““New” Loan Consolidation (cont.)New” Loan Consolidation (cont.)

Four consolidation servicers for origination and loan payoff activity:

FedLoan Servicing Great Lakes Nelnet Sallie Mae


Federal Loan ServicersFederal Loan Servicers Borrower Contact #

Aspire Resources Inc. 1-855-475-3335

CornerStone 1-800-663-1662

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

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

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Thank You!Thank You!

Sue O’FlahertySue O’Flaherty

Direct Loan Servicing Direct Loan Servicing 202-377-3393202-377-3393

Sue.O’[email protected]

QUESTIONS?QUESTIONS?

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mailto:[email protected]

federal loan servicing update

Documents

borrowers loans

direct loan accounts

transferred loans

new federal loan servicer

nfpfederal loan servicers

number of loans

owned loans

ksa servicing