Federal Loan Servicing Update

1. Session # 7 Federal Loan Servicing Update Sue O’Flaherty | Dec. 2013 U.S. Department of Education 2013 FSA Training Conference for Financial Aid Professionals

2. Meet the Servicer Panel 2

3. Servicing Team Updates • Looking Back • Program Updates • Challenges and Improvements • Delinquency Support Activities • Looking Forward • On the Horizon Agenda 3

4. Loan 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.  * Direct Loan Servicing Center (ACS) Decommissioned 4 4

5. Loan Servicing Updates – Not-For-Profit (NFP) • 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. 5

6. 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. Schoolssee 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. 6

7. Loan Servicing Updates – Split 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. • .

8. Loan Servicing Updates – Split Servicing • October – December 2013 • During 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. • .

9. Loan Servicing Updates – Repayment Campaign The Department launches an Income-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.

10. Loan Servicing Updates – Repayment Campaign • 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 unemployment • The 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

11. Loan Servicing Updates – Repayment Plan Preference • 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. • .

12. Loan Servicing Updates – Repayment Plan Preference • 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.

13. Managing Change – Multi-Servicer Environment Requirement changes evolve from regulatory changes, policy updates, and new business decisions. • FedLoan (PHEAA) • MOHELA • Cornerstone • Aspire • Nelnet • ESA/Edfinancial • Granite State • OSLA • VSAC

14. Managing Change - 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. • Examples: Decisions to Standardize • Forbearance Limits • Capitalization

15. Managing Change - Decision to Standardize Forbearance Limits 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.

16. Managing Change - Decision to Standardize Forbearance Limits 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.  

17. Managing Change - Decision to Standardize Forbearance Limits 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: • 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

18. Managing Change - Decision to Standardize Capitalization 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.

19. Managing Change - Decision to Standardize 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 period • At 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).

20. Managing Change - Decision to Standardize Capitalization : Rules • For ICR: • During periods of negative amortization, annually • Negative amortization interest capitalizes only until principal balance is 10% greater than original principal from when borrower entered repayment • Otherwise, normal capitalization rules apply • For IBR: • No longer qualifies for payments based on income (no longer has a partial financial hardship) or • Leaves IBR entirely • For Pay As You Earn: • No longer qualifies for payments based on income (no longer has a partial financial hardship) or • Leaves Pay As You Earn entirely • Interest capitalizes only until principal balance is 10% greater than original principal amount when borrower entered plan

21. Looking Back – Program Updates Presented by: Jim Harris 21

22. Regulation 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 holders An individual will be required to submit only one application to the Department to apply for a TPD discharge An 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 7years from the date of the individual’s most recent SSA disability determination Looking Back – Total & Permanent Disability (TPD)

23. Regulation 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: www.disabilitydischarge.com Looking Back – Total and Permanent Disability

24. Program Updates Looking Back – Program Updates Presented by: Dan Weigle 24

25. Looking Back – Public Service Loan Forgiveness 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. 25

26. Looking Back – Public Service Loan Forgiveness In November 2011, 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 26

27. Looking Back – Public Service Loan Forgiveness • 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

28. Review of PSLF Processing Looking Back – Public Service Loan Forgiveness

29. Payment Tracking for Eligible Borrowers 29

30. PSLF - Frequently Asked Questions • 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 FedLoan Servicing? • No, they will remain with their commercial servicer. • Under IBR, ICR, and Pay As You Earn the scheduled payment for a 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? • No, they do not need to be consecutive. • Are loan amounts forgiven for PSLF considered income for tax purposes? • No, they are not considered income. 30

31. Looking Back – Program Updates Presented by: Dan Weigle 31

32. 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 – TEACH

33. Looking Back – TEACH All existing and new TEACH Grant recipients received communication from FedLoan regarding the transfer of their grant and/or loans. 33

34. Looking Back – TEACH Grants FedLoan Servicing responsibilities include: • Customer Support • Processing applications and forms related to the service obligation • Monitor and track recipients progress toward the required service obligation Customer Support • Trained a specialized customer service and processing team • Customer 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 recipients • Updated our borrower portal to assist in tracking their service obligation 34

35. Dedicated Site MyFedLoan.org/TEACH 35

36. TEACH 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 36

37. Looking Back Challenges and Improvements Presented by: Brett Lindquist 37

38. Looking Back - Servicing Issues and Challenges Servicer 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

39. Looking Back - Servicing Key Improvements Servicer Transfers • 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)

40. Looking Back - Servicing Key Improvements Repayment Options • 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

41. Looking Back – Schools Repayment Options • 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

42. Looking Back - Servicing Key Improvements 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

43. Looking Back - Schools NSLDS Accuracy • Ensure Servicers Update NSLDS Timely & Accurately • Weekly Updates By Federal Servicers • Low Error Rates • NSLDS Integrity Projects • NSLDS Delinquency/Default Reports that cover all serviced loans

44. Delinquency Support Activities Presented by: Bob Leary 44

45. Delinquency 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 45

46. Delinquency Support Activities • Examples of activities servicers are doing:

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

48. Delinquency Support Activities • 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 48

49. Servicing Team Updates • Looking Back • Program Updates • Challenges and Improvements • Delinquency Support Activities • Looking Forward • Implementation of 150% - Loss of Interest Subsidy • Loan Consolidation 49

50. 150% - Loss of Interest Subsidy (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 – 150% - Loss of Subsidy