Senators Urge Department of Education to Streamline Student Loan Contracts

WASHINGTON, DC— Senator James Lankford (R-OK) and Senator Jeanne Shaheen (D-NH) today urged the U.S. Department of Education to remove the limitations for Not-for-Profit (NFP) organizations servicing federal student loans, to better streamline the program.

In a letter to Secretary Duncan, the senators referenced the recent hearing in the Senate Appropriations Committee. They reiterated their expectation, based on Secretary Duncan’s recent testimony, that the department will reexamine and eliminate the current 25 percent limitation of NFP loan allocations, and allow the loan servicers to compete equally and receive loan allocations in accordance with their performance.

“We are asking the Department of Education to keep their word when they evaluate how student loans are distributed to the loan contract servicers,” said Lankford. “Our main focus is to ensure the six NFPs nationally, including one in Oklahoma, aren’t treated any differently from the rest of the loan servicers. The allocations should reflect performance, not be subject to arbitrary limitations.”

In the Consolidated Appropriations Act, 2014, Congress directed the Secretary of Education to report to Congress on it’s plan to streamline the metrics used to measure NFP and Title IV Additional Servicers (TIVAs) to ensure consistency across all loan contracts. Although the NFPs and TIVAs were held equally accountable in their 2015 loan allocations, NFPs were only allocated 25% of new borrower accounts.

TIVAs and NFPs manage and administer millions of federal student loan accounts every year. They act as advisors for borrowers and assist with resources and benefits to better manage their federal student loan obligations. They are the customer servicer link for all student loans provided through the Federal Student Aid program from the Department of Education. 

Joining Lankford were Senators Jeanne Shaheen (D-NH), Chuck Grassley (R-IA), Patrick Leahy (D-VT), Bernard Sanders (I-VT), Mike Lee (R-UT), Lisa Murkowski (R-AK), James Inhofe (R-OK), Claire McCaskill (D-MO), Kelly Ayotte (R-NH) and Orrin Hatch (R-UT).

In 2014, NFPs were only allocated 3 million of the nearly 25 million student loan borrower accounts.

A PDF of the letter is available here, and the full text is below. 

The Honorable Arne Duncan

Secretary

U.S. Department of Education

400 Maryland Ave, SW

Washington, DC 20202

Dear Secretary Duncan:

We are writing to reiterate our expectation and understanding, based on your recent testimony before the Senate Appropriations Committee, that the U.S. Department of Education will allocate new student loan servicing contracts based strictly on the performance metrics developed by the Department to evaluate federal loan servicers.  As the Department undertakes its reexamination of the percentage of new loan volume allocated to servicers for the 2015-16 academic year, we strongly encourage you to eliminate the 25 percent limitation on Not-for-Profit (NFP) servicer allocations, and allow NFP servicers to compete equally and receive allocations in accordance with their performance.

During the 2014-15 academic year, the seven NFP student loan servicers are only allowed to compete for 25 percent of new loan allocations available on or after January 1, 2015, with the remaining 75 percent being allocated to the four Title IV Additional Servicers.  According to the Department’s own metrics to determine servicer performance, the NFP servicers outperform the Title IV Additional Servicers in almost every category. 

We appreciated your willingness to engage on the issue of federal student loan servicing and the importance we place in allowing NFP servicers to compete fairly for new loan volume when you appeared before the Senate Appropriations Committee in April.  We were encouraged by your response that the Department will undertake reallocations based “strictly on performance,” and therefore expect that the Department will eliminate the cap on NFP servicer allocations and allow all servicers to compete equally for the 2015-16 academic year.

Basing the allocation of loans on measured performance criteria is an important step that will further the Department’s responsibility to ensure borrowers receive high-quality service.   We look forward to your response. 

Sincerely,

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