federal loan servicing update

Cynthia Battle| Nov. 2012

U.S. Department of Education

2012 Fall Conference

Federal Loan Servicing Update

Session 15

AgendaThe servicing landscape has changed dramatically and this session will assist schools in navigating a multiple servicer environment with a focus on understanding the various entities and their roles; our Not-for-Profit (NFP) servicers; and our strategy going forward as we transition the current federal portfolio.

Servicing Landscape Background Federal Loan Servicers Split Servicing

Navigating the Servicer Environment FSA Oversight and Monitoring Measuring Performance Managing Change

Strategies and Future Changes

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BackgroundAuthority that Changed the Federal Loan Programs:

Ensuring Continued Access to Student Loans Act (ECASLA)

Secretary runs two main programs under ECASLA:– Loan Purchase Program (PUT)– 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:

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“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.”

Federal Loan Servicers - TIVAS

COD LDE • Origination• Disbursement • Loan Allocation• Servicer Assignment • Customer Service

COD

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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.

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Not-For-Profit Servicers

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

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

We continue to expand our federal loan servicer team as our loan portfolio grows

Whether individual or team award, our customers will know and face one servicer


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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

EdManage DEPT OF ED/EDMANAGE 505

ESA/Edfinancial DEPT OF ED/ESA-EDFINANCIAL 501

Granite State – GSMR DEPT OF ED/GRANITE STATE-GSMR-NH 504

KSA Servicing (Kentucky) 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. How many more NFP’s will be awarded under the solicitation?

A. There are seven more NFP’s tentatively scheduled to go live in 2013. The solicitation is open until 12/2013 so there is a potential for more NFP’s to be added.


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?

A. 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.

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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Q. Which Direct Loan borrower accounts are transferred to the NFP’s?

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

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 an 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.


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Not-For-Profit – Transfers

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. Is it possible for the NFPs to service any new loans? A. Possible – yes, but unlikely FSA will put that in place any time soon.

Q. A student in repayment recently had their loans transferred to an NFP servicer. The student went back to school and loans have been transferred to a different servicer. Can anything be done to simplify the process?

R. Because NFPs do not service newly originated loans and to keep a borrower serviced by a single servicer, the transfer is done.


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Split Servicing - Background

Split Servicing – borrowers with federally held loans serviced by more than one federal loan servicer

ED owns both Direct Loans and FFELP (PUT)PUT: Loans made under FFELP by lenders and subsequently purchased by ED

Split Servicing conditions resulted from:• PUT loans (FFELP loans purchased by ED)• Schools transitioning from FFELP to Direct Loan

Goal: All of a borrower’s federally-held loans will be maintained by a single servicer.

Ongoing processes to resolve situations where a borrower’s federally-held loans are assigned to two or more federal servicers.

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Split Servicing - Solution

• Federally-owned and commercial loans may still be split among servicers

• Consolidation sometimes viable option, but not in all circumstances

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Agenda Servicing Landscape

Background Federal Loan Servicers Split Servicing



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Challenges and Benefits

• The federal loan servicers and FSA collaborate on solutions to borrower, school, regulatory and operational issues

• Through the multi-servicer, borrower-centric approach, schools will notice different processes and procedures offered by the servicers

• The competitive structure of the servicing contracts allows for more innovation and creativity

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Making it work…

• With the addition of new servicers challenges accompany growth and change

• Remember … with our borrower-centric approach• Schools see many servicers; but • Borrowers see ONE servicer

• Together with our servicing team, we will work to serve borrowers as efficiently as possible

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Oversight and Monitoring

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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 Bi-weekly Issue Tracking and Resolution Meetings Program Compliance Reviews Call Monitoring Internal & Financial Controls Audits Monthly Data Reconciliation

Measuring Performance

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Allocation Methodology

• Allocations are based on rankings • Survey results • Repayment statistics• Most points for first place• One point for last place• Percent of new loans = percent of points

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Survey three groups Borrowers Schools Federal Personnel

Customer Satisfaction Surveys

Conducted quarterly and designed to take 10 minutes or less.

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Surveys - Borrowers

Quarterly phone surveys 250 per servicer (includes NFP servicers)

Random selection by repayment status Surveyors from Discovery Research Group will contact borrowers on

our behalf and NO giveaways to participate are involved.

Same proportion of borrowers in school, grace, and repayment within samples of all servicers

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Surveys – Borrowers

Servicer 2009-2010 2010-2011 2011-2012 2012-2013 *

ACS /Xerox 74 74 75 74

Great Lakes 67 72 75 75

Nelnet 66 71 74 74

PHEAA 69 74 75 76

SallieMae 69 72.5 73 73

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Surveys – Borrowers (NFPs)

Cornerstone EdFinancial (ESA) MOHELA Granite State Aspire

Borrower 69 68 70 69 71

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Note : the NFP servicer surveys are based on ONLY borrowers in repayment because that is virtually all they have in the portfolio.

Surveys - Schools Quarterly phone survey of random samples

75 per servicer (total of 375) Schools are NOT currently surveyed about the NFP servicers (only FedLoan, Great Lakes, Nelnet, Sallie Mae or ACS/Xerox)

Sampled by servicer and institution type Surveyors from OLC Global conducts the surveys on our behalf and NO giveaways to participate are involved

School contact information pulled from PEPS

Ask school personnel about only 1 servicer

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2009-2010 2010-2011 2011-2012 2012-2013 *

ACS /Xerox 65 64 62

Great Lakes 79 75 78 83

Nelnet 76 72 74 77

PHEAA 75 71 73 78

SallieMae 75 70 72 74

Surveys - Schools

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Survey – Aggregate Scores

2009-2010 2010-2011 2011-2012 2012-2013 *

Borrower 68 73 74 74

Schools 73 73 72 75

FSA 70 69 64 65

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Survey – Default Prevention

Default Prevention Measures are simple arithmetic and rounds all results to the hundredths place

“Count” = number of borrowers in repayment that go into default during the quarter by the number of unique borrowers in the repayment portfolio at the end of each quarter

“Amount” = the dollar value of the loans that go into default during the quarter by the total value of the repayment portfolio at the end of the quarter

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How does FSA Measure Up?

2009 2010 2011 Banks 75 76 75 FSA 69 73 75 Credit Unions 84 80 87

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If the surveyor calls …

• Please respond or forward the call to a colleague at your school if your work does not involve such matters

• Base responses on your experiences with the servicing of federally-owned loans

Remember … your feedback matters!

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Managing Change – Multi Environment

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

Servicer Requirements

Servicer Requirements

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Loan Servicing

When and how is the servicer assigned?

The federal loan servicer is assigned upon the “booking” of the loan. Booking occurs when COD accepts an origination record, links to the p-note, and accepts actual disbursement

New borrowers are assigned to Great Lakes, FedLoan, Nelnet, and Sallie Mae based upon percentages assigned by FSA. The percentages of new loans each servicer receives is based on its performance (default rates & customer service scores)

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How do borrowers know which servicer is servicing their loans?

When we assign a student or parent borrower’s Direct Loans to a federal loan servicer, the servicer corresponds with the borrower

The “welcome” correspondence notifies the borrower of the servicer, toll-free phone number, and website information

Always refer borrower to NSLDS if they need to identify their federal loan servicer

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Interest Payments:

Many borrowers choose to make interest-only payments on their unsubsidized student loans

Borrowers can always view and make a payment on the servicer’s website at any time

Quarterly interest statements are generated either automatically or at the request of the borrower (e-mail or paper mail) while the borrower is in school

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What to expect from the servicers while your borrowers are in school…

There are several key messages that schools can remind borrowers:

Check NSLDS to identify all federal loans Provide servicers with updated contact information Sign up for online account access Sign up for automatic debit to ensure timely payments Call the servicer to obtain information on repayment options that best meet the borrower’s financial situation

Understand that servicers are there to help!39

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Counseling While In-Grace

Establish a relationship with the borrower Ensure the correct repayment status Discuss the appropriate repayment plan Promote self-service through the web Update and enhance borrower contact information Discuss consolidation options

During the grace period our loan servicers:

Our servicers have representatives trained and online tools designed to assist the borrower:

Understand the various repayment plans and options

Understand entitlements Deferments Forbearances Discharges Forgiveness Programs

Loan Consolidation

Tools for Borrowers

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Understanding Repayment Plans

Student borrowers may repay their student loans through one of several repayment plans:

Standard Repayment Plan Graduated Repayment Plan Extended Repayment Plan Alternative Repayment Plans (Direct Loan Only)

Income-Driven Repayment Plans: Income-Based Repayment (IBR) Income-Contingent Repayment (ICR)(Direct Loan Only) Income-Sensitive Repayment (FFEL Only) NEW Pay As You Earn (Direct Loan Only)

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Income-Driven Plans - Overview

• Three main plans: • Income-Contingent Repayment Plan (ICR) – 1994

• Direct Loan Program only

• Income-Based Repayment Plan (IBR) – 2009• Available in both the Direct Loan and FFEL Program

• Pay As You Earn Plan – 2012• Direct Loan Program only• For new borrowers in FY 2008 who receive new loans in FY 2012• Modeled on IBR, incorporating statutory IBR changes scheduled to take effect for

new borrowers in 2014

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Pay As You Earn - HighlightsEligible Borrower: • Direct Loan borrowers with eligible loans• Must be a new borrower on/after 10/1/2007 who received new loan on/after

10/1/2011 and• Their payments would be lower on Pay As You Earn relative to what would have

been paid on the 10-year standard repayment plan (called “partial financial hardship”)

Eligible LoansAll Direct Loans are eligible except parent PLUS Loans and Consolidation Loans that repaid parent PLUS Loans.

Payment:

Under Pay As You Earn, borrowers pay the lesser of:• 10% of discretionary income (income-based payments) or• What they would have paid under the 10-year standard repayment plan (non-

income-based payments)

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A borrower can temporarily postpone or lower payments

with a deferment or forbearance. A borrower should contact their loan servicer to determine eligibility

Deferment: Allows a borrower to temporarily stop making payments for up to 12 months. Borrowers are not charged interest on subsidized loans during deferment. Interest will continue to be charged on unsubsidized loans (including all PLUS loans)

Forbearance: Allows a borrower to temporarily stop making payments or reduce monthly payment for up to 12 months. Interest will continue to be charged on subsidized and unsubsidized loans (including all PLUS loans)

As a general rule, the federal loan servicers will accept either the FFEL Program or Direct Loan Program deferment form for all deferment requests for federally-owned loans

Deferment and Forbearance should not be the first option. Our servicers counsel borrowers on repayment plans before applying a deferment of forbearance.

Deferment and Forbearance

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Communication Channels for Borrowers

• All servicers have toll free numbers for borrowers to contact (phone, fax, and e-mail)

• Use IVR (integrated voice response) systems• Allow self-service for those that prefer• Make payments over the phone• Includes option to speak to a representative

• All servicers have a dedicated staff to assist borrowers

• Financial literacy resources (budgeting, credit tips, etc.)

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Benefits of Consolidation:

One Lender and One Monthly Payment Flexible Repayment Options Lower Monthly Payments Fixed Interest Rate for Life of Loan It’s Free

Other Repayment Strategies

Loan Consolidation

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Loan Consolidation – Pre-Pop

Newly Enhanced: Pre-population of the loan consolidation application utilizing NSLDS

Improves the application process and the applicants experience through:

Reducing the need for applicants to manually gather all of their current loan information

Speeding up the process of completing the application

Accelerating the application processing time

Improving application accuracy

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Loan Consolidation

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Loan Consolidation

A new NSLDS look-up feature has been integrated to the

application process, presenting pre-populated

loan choices.

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Our Federal Loan Servicers:

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 states of delinquency

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Protect the Grace Period

- Schools must learn when a borrower leaves campus to promptly report to NSLDS

Of the borrowers who defaulted, most did

not receive their full 6-month grace period

due to late or inaccurate enrollment

notification by the school.

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Partnering with Schools:

All servicers work to gather feedback and findways to partner with schools on default prevention

• Face to face meeting on school campuses• Financial aid conference attendance • Presentations at conferences• Proactive phone calls• E-mail communication

Partner with the servicers!

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What is required for a school to obtain access for a third party servicer that handles the school’s default management activities?

All of the federal loan servicers allow third party servicer access to school data and reporting AFTER the school establishes an agreement with each servicer indicating its relationship with the third party servicer.

Third Party Servicers

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Reporting Resources:

Centralized Loan Information

NSLDS:

Includes Guaranty Agency (GA) or Lender held FFEL, PUT (ED-held FFEL), Direct Loans, and servicer assignments

Leverage NSLDS Reports for Default/Delinquency Prevention: School Portfolio Report

Delinquent Borrower Report

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Reporting Resources:

Individual Servicer Reports

Provide greater level of detail

Offer customization options

Include only loans serviced by that organization

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Agenda Servicing Landscape

Background Federal Loan Servicers Split Servicing



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Strategies and

Future Changes

Questions

Thank You!Please let us know feedback or

further questions

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Cindy Battle [email protected]

Bill Leith [email protected]

federal loan servicing update

Documents

federal loan programs

federal loan servicer

term federal loan servicers

booking of loan

notforprofit nfp servicers

loan distribution engine

servicing guidelines

current federal portfolio