Federal Loan Servicing Update

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Session 15. Federal Loan Servicing Update. Cynthia Battle| Nov. 2012 U.S. Department of Education 2012 Fall Conference. Servicing Landscape Background Federal Loan Servicers Split Servicing Navigating the Servicer Environment FSA Oversight and Monitoring Measuring Performance - PowerPoint PPT Presentation

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<ul><li><p>Cynthia Battle| Nov. 2012U.S. Department of Education2012 Fall ConferenceFederal Loan Servicing UpdateSession 15 </p></li><li><p>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.</p><p>Servicing LandscapeBackgroundFederal Loan ServicersSplit Servicing</p><p>Navigating the Servicer EnvironmentFSA Oversight and Monitoring Measuring Performance Managing Change </p><p>Strategies and Future Changes</p><p>*</p></li><li><p>BackgroundAuthority that Changed the Federal Loan Programs:</p><p>Ensuring Continued Access to Student Loans Act (ECASLA)Secretary runs two main programs under ECASLA:Loan Purchase Program (PUT)Conduit </p><p>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) ProgramRequired the Secretary to contract with not-for-profit servicers *</p></li><li><p>Our Federal Loan Servicers:*</p></li><li><p>* </p><p>TIVASTitle IV Additional Servicers</p><p>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.</p></li><li><p>Federal Loan Servicers - TIVASCOD LDE OriginationDisbursement Loan AllocationServicer Assignment Customer Service</p><p>LDE : Loan Distribution Engine: interface to assign loans to the federal loan servicers.</p><p>Booked Loan: occurs when the COD system accepts an origination record; links p-note to the record and accepts actual disbursement. </p><p>The federal loan servicer is assigned upon booking of loan. *</p></li><li><p>* </p><p>Not-For-Profit ServicersNot-For-Profit awarded federal loan servicing contracts under the HCERA/SAFRA Not-For-Profit (NFP) Servicer Program solicitation.</p></li><li><p>Federal loan servicing contracts awarded under the HCERA/SAFRA Not-For-Profit (NFP) Servicer Program solicitation</p><p>We continue to expand our federal loan servicer team as our loan portfolio grows</p><p>Whether individual or team award, our customers will know and face one servicer </p><p>Not-For-Profit Servicers*</p></li><li><p>*How many more NFPs will be awarded under the solicitation?</p><p>A. There are seven more NFPs tentatively scheduled to go live in 2013. The solicitation is open until 12/2013 so there is a potential for more NFPs to be added.</p><p>Not-For-Profit Servicers</p><p>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 508MOHELA DEPT OF ED/MOHELA 500 OSLA Servicing DEPT OF ED/OSLA SERVICING 506 VSAC Federal LoansDEPT OF ED/VSAC SERVICING511</p></li><li><p>When are loans assigned to an NFP servicer? </p><p>A. Once the NFP has met and demonstrated compliance with all requirements and is deemed qualified and eligible.</p><p>Q. Do the NFP servicers perform under the exact same servicing guidelines as the TIVAS?</p><p>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.</p><p>How long will the NFPs participate in the program?</p><p>A. The NFP contracts are for five years with a 5-year additional option.</p><p>Not-For-Profit Servicers*</p></li><li><p>Q. Which Direct Loan borrower accounts are transferred to the NFPs? </p><p>A. We transfer existing Direct Loan borrower accounts currently assigned to the Direct Loan Servicing Center (ACS / Xerox). </p><p>Q. How will a borrower know if his or her Direct Loans were transferred to a new NFP servicer ?</p><p>When we transfer a student or parent borrowers 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.</p><p>Not-For-Profit Servicers*</p></li><li><p>*Not-For-Profit Transfers</p></li><li><p>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.</p><p>Q. Is it possible for the NFPs to service any new loans? Possible yes, but unlikely FSA will put that in place any time soon.</p><p>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?Because NFPs do not service newly originated loans and to keep a borrower serviced by a single servicer, the transfer is done.</p><p>Not-For-Profit Servicers*</p></li><li><p>Split Servicing - BackgroundSplit Servicing borrowers with federally held loans serviced by more than one federal loan servicerED owns both Direct Loans and FFELP (PUT)PUT: Loans made under FFELP by lenders and subsequently purchased by ED </p><p>Split Servicing conditions resulted from:PUT loans (FFELP loans purchased by ED)Schools transitioning from FFELP to Direct Loan</p><p>Goal: All of a borrowers federally-held loans will be maintained by a single servicer.</p><p> Ongoing processes to resolve situations where a borrowers federally-held loans are assigned to two or more federal servicers.</p><p>*</p></li><li><p>Split Servicing - Solution</p><p>Federally-owned and commercial loans may still be split among servicers Consolidation sometimes viable option, but not in all circumstances*</p></li><li><p>AgendaServicing LandscapeBackgroundFederal Loan ServicersSplit Servicing</p><p>Navigating the Servicer EnvironmentFSA Oversight and Monitoring Measuring Performance Managing Change </p><p>Strategies and Future Changes</p><p>*</p></li><li><p>Challenges and BenefitsThe federal loan servicers and FSA collaborate on solutions to borrower, school, regulatory and operational issues</p><p>Through the multi-servicer, borrower-centric approach, schools will notice different processes and procedures offered by the servicers</p><p>The competitive structure of the servicing contracts allows for more innovation and creativity </p><p>*</p></li><li><p>Making it workWith the addition of new servicers challenges accompany growth and change</p><p>Remember with our borrower-centric approachSchools see many servicers; but Borrowers see ONE servicer</p><p>Together with our servicing team, we will work to serve borrowers as efficiently as possible *</p></li><li><p>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.</p><p>Monitoring Activities include (but not limited to): Process and Operational Monitoring Bi-weekly Issue Tracking and Resolution Meetings Program Compliance Reviews Call Monitoring Internal &amp; Financial Controls Audits Monthly Data Reconciliation </p></li><li><p>Measuring Performance *</p></li><li><p>Allocation MethodologyAllocations are based on rankings Survey results Repayment statisticsMost points for first placeOne point for last placePercent of new loans = percent of points </p><p>*</p></li><li><p>Survey three groups Borrowers Schools Federal Personnel Customer Satisfaction SurveysConducted quarterly and designed to take 10 minutes or less.*</p></li><li><p>Surveys - Borrowers Quarterly phone surveys 250 per servicer (includes NFP servicers)</p><p> Random selection by repayment status Surveyors from Discovery Research Group will contact borrowers on our behalf and NO giveaways to participate are involved. </p><p> Same proportion of borrowers in school, grace, and repayment within samples of all servicers</p><p>*</p></li><li><p>Surveys Borrowers*</p><p> Servicer2009-20102010-20112011-20122012-2013 * ACS /Xerox74747574 Great Lakes67727575 Nelnet66717474 PHEAA69747576 SallieMae6972.57373</p></li><li><p>Surveys Borrowers (NFPs)*Note : the NFP servicer surveys are based on ONLY borrowers in repayment because that is virtually all they have in the portfolio. </p><p>CornerstoneEdFinancial (ESA)MOHELAGranite StateAspireBorrower6968706971</p></li><li><p>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</p><p> Ask school personnel about only 1 servicer</p><p>*</p></li><li><p>Surveys - Schools*</p><p>2009-20102010-20112011-20122012-2013 * ACS /Xerox656462 Great Lakes79757883 Nelnet76727477 PHEAA75717378 SallieMae75707274</p></li><li><p>Survey Aggregate Scores*</p><p>2009-20102010-20112011-20122012-2013 * Borrower68737474 Schools73737275 FSA70696465</p></li><li><p>Survey Default Prevention Default Prevention Measures are simple arithmetic and rounds all results to the hundredths place </p><p> 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</p><p> 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</p><p>*</p></li><li><p>Survey Default Prevention *</p></li><li><p>Survey Default Prevention *</p></li><li><p>How does FSA Measure Up? *</p><p>200920102011 Banks757675 FSA697375 Credit Unions848087</p></li><li><p>If the surveyor calls Please respond or forward the call to a colleague at your school if your work does not involve such matters</p><p>Base responses on your experiences with the servicing of federally-owned loans</p><p>Remember your feedback matters!</p><p>*</p></li><li><p>Managing Change Multi EnvironmentRequirement changes evolve from regulatory changes, policy updates, and new business decisions.</p><p>Servicer Requirements</p><p>*</p></li><li><p>*Loan Servicing</p></li><li><p>When and how is the servicer assigned?</p><p>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</p><p>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 &amp; customer service scores)</p><p> *</p></li><li><p>How do borrowers know which servicer is servicing their loans?</p><p>When we assign a student or parent borrowers Direct Loans to a federal loan servicer, the servicer corresponds with the borrower</p><p>The welcome correspondence notifies the borrower of the servicer, toll-free phone number, and website information</p><p>Always refer borrower to NSLDS if they need to identify their federal loan servicer *</p></li><li><p>Interest Payments:</p><p>Many borrowers choose to make interest-only payments on their unsubsidized student loansBorrowers can always view and make a payment on the servicers website at any timeQuarterly interest statements are generated either automatically or at the request of the borrower (e-mail or paper mail) while the borrower is in school </p><p>*What to expect from the servicers while your borrowers are in school</p></li><li><p>There are several key messages that schools can remind borrowers: </p><p> 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 borrowers financial situation</p><p>Understand that servicers are there to help!*</p></li><li><p>*Counseling While In-GraceEstablish a relationship with the borrowerEnsure the correct repayment statusDiscuss the appropriate repayment planPromote self-service through the web Update and enhance borrower contact informationDiscuss consolidation options</p><p>During the grace period our loan servicers:</p></li><li><p>Our servicers have representatives trained and online tools designed to assist the borrower:</p><p> Understand the various repayment plans and options</p><p> Understand entitlements Deferments Forbearances Discharges Forgiveness Programs</p><p> Loan Consolidation Tools for Borrowers *</p></li><li><p>Understanding Repayment Plans Student borrowers may repay their student loans through one of several repayment plans:Standard Repayment PlanGraduated Repayment PlanExtended Repayment PlanAlternative Repayment Plans (Direct Loan Only)</p><p>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)</p><p>*</p></li><li><p>Income-Driven Plans - OverviewThree main plans: Income-Contingent Repayment Plan (ICR) 1994Direct Loan Program only</p><p>Income-Based Repayment Plan (IBR) 2009Available in both the Direct Loan and FFEL Program</p><p>Pay As You Earn Plan 2012Direct Loan Program onlyFor new borrowers in FY 2008 who receive new loans in FY 2012Modeled on IBR, incorporating statutory IBR changes scheduled to take effect for new borrowers in 2014*</p></li><li><p>Pay As You Earn - HighlightsEligible Borrower: Direct Loan borrowers with eligible loansMust be a new borrower on/after 10/1/2007 who received new loan on/after 10/1/2011 andTheir 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)</p><p>Eligible Loans All Direct Loans are eligible except parent PLUS Loans and Consolidation Loans that repaid parent PLUS Loans.</p><p>Payment:Under Pay As You Earn, borrowers pay the lesser of:10% of discretionary income (income-based payments) orWhat they would have paid under the 10-year standard repayment plan (non-income-based payments)</p><p>*</p></li><li><p>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)</p><p>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. </p><p>Deferment and Forbearance*</p></li><li><p>Communication Channels for BorrowersAll servicers have toll free numbers for borrowers to contact(phone, fax, and e-mail)</p><p>Use IVR (integrated voice response) systemsAllow self-service for those that preferMake payments over the phoneIncludes option to speak to a representative</p><p>All servicers have a dedicated staff to assist borrowers </p><p>Financial literacy resources (budgeting, credit tips, etc.)</p><p>*</p></li><li><p>Benefit...</p></li></ul>