Federal Loan Servicing Update

1. Session # 17 Federal Loan Servicing Update Sue O'Flaherty and Cynthia Battle | Dec. 2014 U.S. Department of Education 2014 FSA Training Conference for Financial Aid Professionals

2. AGENDA General Servicing Updates • Contract Changes • Servicing Portfolio Key Projects and Improvements • Standardization of Processes • Program Updates Looking Ahead Questions and Answers • Session Agenda 2

3. General Updates - Servicers • The Department currently has 11 student loan servicers under contract. • Four Title IV Additional Servicers (TIVAS): • FedLoan Servicing (affiliate of the Pennsylvania Higher Education Assistance Authority) • Great Lakes Educational Loan Services • Navient (formerly Sallie Mae) • Nelnet • Seven Not-For-Profit (NFP) Servicers: • Higher Education Loan Authority of Missouri (MOHELA) • Education Services of America (EdSouth) • Utah Higher Education Assistance Authority (Cornerstone) • Aspire (an affiliate of the Iowa Student Liquidity Corporation) • New Hampshire Higher Education Loan Corporation (Granite State) • Oklahoma Student Loan Authority (OSLA) • Vermont Student Assistance Corporation (VSAC) • New pricing and metrics were effective for the TIVAS on September 1, 2014. • Similar changes were implemented for the NFP servicers beginning October 1, 2014.

4. What is Being Overseen and Managed? • 11 loan servicing contracts • Four Title IV Additional Servicers • Seven Not-for-Profit Servicers • 8,670 employees at 38 facilities in 22 states • Four servicing platforms • 29 million borrowers/130 million loans • Over the last year servicers processed • 386 million phone calls • 754 million e-mails/correspondence

5. General Updates – Servicing Changes • Changes Beginning January 1, 2015: • Booking Interface - The seven NFP servicers will begin receiving newly originated (Direct Loans) from COD • We have implemented a “booking interface” allowing the NFP members of the servicing team to receive and service Direct Loans originated at COD • [Originated = disbursed amount >$0, linked P-Note, and disbursement date] • Customer Satisfaction Survey - Discontinued the survey’s school response element • We took the opportunity to refocus and enhance the customer satisfaction survey performance metric to better support the new incentives. We retained the borrower response element and discontinued the survey’s school response element

6. Strategies to Maximize Performance

7. Competition among Servicers • Performance-Based Allocation of New Accounts • Five Metrics • % of Borrowers in Current Status (30%) • % of Borrowers over 90 Days Delinquent (15%) • % of Borrowers in Default (15%) • Borrower Satisfaction Survey (35%) • Federal Employee Satisfaction Survey (5%)

8. Performance-Based Compensation • Monthly payments based on loan status and volume of borrower accounts • Highest payment for borrowers in repayment and current • Rates decrease on sliding scale as borrowers grow more delinquent • Recent change increased premium for current in-repayment accounts

9. Monitoring and Oversight • Planned enhancements include: • Additional staff • Move from quarterly to monthly monitoring • Expand scope from broad view of due diligence to explicit focus on areas such as IDR, service member benefits, and loan consolidation • Expand sampling of borrower-level account transactions

10. Opportunities for Future Improvement • Consolidated complaint submission, tracking, and analysis • Increased consistency in branding and communications • New loan servicing acquisition planned to begin not later than early 2016

11. Servicing Transition to Navient • Transition into two separated companies – Navient and Sallie Mae successfully completed October 13, 2014 • Minimal actions for borrowers • Payments made through automatic debit continued without any action from borrowers • Telephone numbers and mailing addresses remained same • Loan account numbers, terms, borrower benefits, and repayment plans remained unchanged • www.Navient.com

12. Servicing Snapshot The total Outstanding FFEL Portfolio for 2014 is $395 billion for 19.4 million borrowers. (average $20,360.82 per borrower) The total Outstanding Perkins Portfolio for 2014 is $8.2 billion for 2.9 million borrowers. (average $2,827.59 per borrower) Includes outstanding principal and interest balances as of 09/30/14. Data Source: National Student Loan Data System (NSLDS)

13. Servicing Snapshot Borrower Status Includes Direct Loans with outstanding principal and interest balances as of 09/30/14. Data Source: National Student Loan Data System (NSLDS)

14. Servicing Snapshot Repayment Plans Includes Direct Loan borrowers in Repayment, Deferment, and Forbearance with outstanding principal and interest balances as of 09/30/14. Data Source: National Student Loan Data System (NSLDS)

15. AGENDA General Servicing Updates • Contract Changes • Servicing Portfolio Key Projects and Improvements • Standardization of Processes • Program Updates Looking Ahead Questions and Answers 15

16. Targeted Improvements

17. Outreach - Repayment Options • Increased Customer Awareness of IDR Plans • Created central 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

18. “Can’t Pay” / Payments Too High • Servicers counsel borrowers on all affordable repayment plans, due date changes, and pre-qualify borrowers for repayment options • Servicers have improved counseling to better explain the different repayment options before deferment and forbearance options • More financial literacy materials and support for borrowers and schools

19. FSA Campaign – Borrowers At-Risk E-mails sent to 3.34 million borrowers (3.15 million successful)

20. FSA Campaign Results 30% 17% 10% 7%

21. Communication - Targeted Improvements

22. In School Communication - Targeted Improvements Communications • Entrance and Exit Counseling • FSA new borrower letter introduces servicer • Servicer Welcome letter and packet • Additional communications include self-service features, balance, interest, entering grace Financial Literacy • Saving for college • Creating a budget • Managing personal finances • Establishing good credit • Avoiding over-borrowing • Identity theft • Wise use of credit cards • Dealing with life events

23. Communication Stages In Grace • Continued Financial Literacy • Servicer/FSA financial literacy site links • Repayment calculator tools • Career search tips • Avoiding the consequences of default • Loan Awareness • Understanding borrowing • Benefits of auto-debit

24. Communication Stages In Grace Preparing for Repayment • Maintain the relationship with the borrower • Ensure correct repayment status • Update and enhance contact information • Promote self-service through the web • Financial literacy continues • Correspondence: Countdown to repayment • FSA Campaigns • In Graceborrowers were the most responsive to FSA’s 2014 campaign. Two e-mails per year will go out containing information about repayment options • Borrowers that Have Withdrawn/Left School – Focus on IBR options that can provide a lower monthly payment with a goal of allowing this group to begin or re-enter a repayment status

25. Communication Stages Income-Driven Repayment • Proactive e-mail campaigns • Re-disclosure statements and regular correspondence • FSA IDR campaigns Communication Methods • Inbound/Outbound calls • Servicer and FSA websites • Text messaging • Bills • Delinquency letters/e-mails • Mail inserts • Responding to written communications • Social media In Repayment Payment Vehicles • Online • Regular telephone • Smart phone • Mail • Auto-pay

26. FSA Repayment Campaigns Marketing Objective:Increase awareness of repayment options Key Messages: • Find the best repayment plan for you • Estimate your monthly payments • You may qualify to make payments based on your income • If you’re having trouble making payments, we can help • You don’t need to pay for services related to your student loans Target Audience: Recent College Graduates and Borrowers Timing: • Spring: 5/1/2014–6/30/2014 • Fall: 10/15/14–12/15/14

27. Fall Repayment Campaign October 15 – December 15, 2014 Sample posts from Halloween Don’t be scared of your student loans. If you have questions or need help, we’re here for you.

28. Fall Mini-Campaign FSA launched a three week joint mini-campaign with the loan servicers to address the predatory practices of third-party debt relief companies. Campaign started Sept. 24th Combat These Ads

29. Critical Communication Stages FSA Outreach Campaigns • “Getting Back on Track” E-mails • 60 and 240 day delinquency letters • Social Media campaigns • Customer Experience Delinquency Servicer Outreach Activities • Creative correspondence • E-mails • Website banners • Working with schools • Personal visits to borrowers • Text messages • Calling campaigns • Skip-trace activity • Assigning borrowers to individual staff members

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31. Critical Communication Stages Default • Facts and activities • Default occurs at 270 days delinquent • All servicers continue attempts to reach the borrower up to 360 days of delinquency • Final Demand Letter sent • Notice of Default sent • FSA Campaign • Defaulted Borrowers with Low Balances <$4,000 • Communication will focus on the small amount of money per month ($50) it will take to rehabilitate their loans, re-enter a repayment status, and start to repair their credit

32. Servicer Communication Enhancements • Website redesigns • Adding new links • Text messaging • Payment plan comparisons • Web chat • Personalized e-mails • Billing reminders • Unique delinquency campaigns • Special features for the military • Enhanced communications while in school and during grace • IDR hotline and webpages • Pre-filled forms for convenience • Borrower newsletters • New website videos • Special phone lines for delinquent borrowers • New voice messaging to make deferment requests easier • In-house borrower surveys • Ability for borrowers to manage their accounts online 24/7 Improvements based on surveys (FSA and Internal, Social Media Comments, Open rates, Feedback from Schools, Focus Groups and Success rates (Calls to Action).

33. Improving Borrower Communications • Servicer Quality Control • Initial and update training • Scripts or talking points provided • Repository of information maintained • Supervisory review and coaching • Regular call monitoring • FSA Quality Control • Call monitoring • Call Center statistics and analysis • Account monitoring and review • Weekly Servicer Liaison touchpoint meetings • On-site reviews

34. Plans for the Future • Servicer initiatives • Easy navigation from any mobile device (phone, tablet, laptop) • Web redesign • Communications and Q&As on the 150% DL Subsidized Limit • Increased “self-service” opportunities • Promoting social media to schools • Enhanced financial literacy materials for borrowers • Staff dedicated to service member counseling • Unique new ideas to reach delinquent borrowers • Online scheduling of a call with a counselor 24/7 • Post-call borrower customer service surveys

35. Targeted Improvements

36. Delinquency Support • Servicers follow standard CDR guidelines and work closely with FSA • Provide support to schools investigating rates • Process challenges and appeals via eCDR

37. Delinquency Support • 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

38. Targeted Improvements

39. Borrowers with federal student 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 “New” Loan Consolidation Available on StudentLoans.gov

40. New Direct Consolidation Loan Process www.StudentLoans.gov • With the implementation of our new Direct Loan Consolidation process, we have four consolidation servicers: • Through the completion of the Federal Direct Consolidation Loan Application and Promissory Note, a borrower will confirm the loans that they want to consolidate and agree to repay the new Direct Consolidation Loan • The electronic application on StudentLoans.gov consist of five steps: • Choose Loans & Servicer • Repayment Plan Selection • Terms & Conditions • Borrower & Reference Information • Review & Sign

41. New Direct Consolidation Loan Process www.StudentLoans.gov • Key features of the electronic application: • NSLDS lookup performed and information about an applicant’s federal education loans will populate the application • Ability to delay processing of the application if applicant has at least one loan still in grace • Option to choose the federal servicer to complete the consolidation • Ability to select a repayment plan for the consolidation loan. Applicants interested in one of the income-driven repayment plans will be able to complete the electronic request process

42. Consistency vs Competition Decision to Standardize 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

43. Standardization of Servicing Processes

44. Improvements - Service Member Support • 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 • Servicers collaborated to create a newbrochure for service members to help them understand all their benefits • Servicers enhanced web content and proactively outreached to service members

45. Service Member Support – Online

46. Service Member Support – The “New” Way • Expanded the use of the Department of Defense (DoD) Database to proactively identify all active duty service members • As of July 2014, the servicers no longer require a written request from the borrower • SCRA interest benefit is granted based on information contained in the DoD database • Borrowers can verbally request servicer to check DoD database for eligibility or submit military documents, if orders are more current than database • Servicers will review monthly all borrowers against the DoD database and apply the interest benefit based on that match

47. Improvements - Prepayment / Paying Ahead • There is still work to do …. But so far: • Based on borrower and school feedback the servicers have expanded web content to make payment information (how payments are applied) clearer • Many of the servicers have made improvements in the transparency of payment information on communications (i.e. billing statements)

48. Improvements - Loan Transfer • Redesign and standardization of transfer 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)

49. Program Updates The Public Service Loan Forgiveness Program (PSLF) 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.

50. Key Program Concerns 50