Servicing Update

1. Session 17 Servicing Update Lisa Oldre and John Brooks| Dec. 2015 U.S. Department of Education 2015 FSA Training Conference for Financial Aid Professionals

2. General Servicing Updates Contract Changes Oversight and Monitoring Key Projects and Improvements Strategies and Future Changes Questions and Answers Agenda

3. General Updates - Servicers • The Department currently has 10 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 • Six Not-For-Profit (NFP) Servicers: • Higher Education Loan Authority of Missouri (MOHELA) • Education Services of America (EdSouth) • Utah Higher Education Assistance Authority (Cornerstone) • New Hampshire Higher Education Loan Corporation (Granite State) • Oklahoma Student Loan Authority (OSLA) • Vermont Student Assistance Corporation (VSAC)

4. General Updates – Servicing Changes • Booking Interface – Effective January 2015, the NFP servicers began receiving newly originated (Direct Loans) by COD • 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] • Team Changes- Aspire Resources Inc. ceased operations as a vendor in the federal student loan servicing team. Direct Loan accounts assigned to Aspire were transferred to MOHELA

5. What is Being Overseen and Managed? • 10 loan servicing contracts • 9,480 employees at 35 facilities in 19 states • Four servicing platforms • 30 million borrowers/141million loans • Over the last year servicers processed • 32 million inbound and 238 million outbound calls • 687 million outbound e-mail/correspondence

6. Strategies to Maximize Performance • Competition among Servicers • Performance-Based Compensation • Monitoring and Oversight

7. Competition among Servicers • Performance-Based Allocation of New Accounts • Five Metrics: • Borrower Satisfaction Survey (35%) • Percent of Borrowers in Current Status (30%) • Percent of Borrowers more than 90 days but less than 271 Delinquent (15%) • Percent of Borrowers in Default (over 270 days and less than 361 days delinquent) (15%) • 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 Activities: • Call Monitoring • Correspondence Reviews • Site Visits • Coordination with CFPB, DOJ and State Agencies • Internal Control Audits • Financial Audits

10. Call Monitoring • Moving towards review of “live call” monitoring • Increase the number of calls reviewed • Increase in staffing to accommodate the review scope • Review of all inbound lines • Review of selected outbound calls • A more comprehensive review being conducted

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

12. KC Servicing Monitoring Team • Established in February 2015 to enhance FSA’s loan servicer monitoring • Team consists of 10 monitors and one supervisor • Review individual borrower accounts at FSA’s 10 servicers for compliance with: • Federal Regulations • FSA’s Servicing Requirements • Change Requests that modify existing requirements or add new ones

13. KC Servicing Monitoring Team • IDR and Alternative Repayment Plans • Fraud Review • LVC – Consolidation • Emergency Forbearance Processing • Bankruptcy • Deferment Processing Review topics include: • Conversion to Repayment • Service members Civil Relief Act (SCRA) • Payment Processing • Credit Reporting • Refunds • Forbearance Processing • Due Diligence

14. 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 Opportunity to consider: • Simplified contract structure • Single system, including common borrower interface

15. Private Collection Agency(PCA) The department contracts with PCA’s to provide collections services Two types of PCA awards: Small Business and Unrestricted FSA working with PCAs at becoming more resolution focused rather than on collection dollars FSA ensures PCAs will accurately counsel borrowers and determine the best course of action based on each customer’s unique situation ensuring: compliance customer service account resolution Monitoring and Oversight

16. General Servicing Updates Contract Changes Oversight and Monitoring Key Projects and Improvements Strategies and Future Changes Questions and Answers Agenda

17. Improvements - Service Member Support • Increased efforts to promote awareness of service member benefits such as SCRA Interest rate cap and Military Service Deferment • Updated Resources (servicer website, brochure) for service members to help them understand all their benefits • Servicers enhanced web content and proactively outreached to service members

18. Improvements - Service Member Support • Expanded the use of the Department of Defense (DoD) Database to proactively identify all active duty service members • 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

19. Improvements – IDR Repayment Options • Increased Customer Awareness of IDR Plans • 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

20. Improvements – IDR Repayment Options • Servicers have improved the counseling to push the different repayment options before deferment and forbearance options • More financial literacy materials and support for borrowers and schools

21. IDR Pilot - Background In an effort to improve communication to borrowers in Income-Driven Repayment (IDR) plans and ensure a smooth, on-time renewal process, Federal Student Aid (FSA) and the White House Social and Behavioral Sciences Team (SBST) collaborated on a series of IDR Notification Pilots. Timeline: May 2015 – October 2015 21

22. IDR Pilot – Open Questions • What improvements (if any) are there in the response rate when the notice is sent from ED brand? • Open rates • Submission rates • Does the type of messaging effect borrower responsiveness? • How do changes in notification timing effect recertification rates?

23. Cohort 1 - Details • Sent E-mails to Borrowers with July Recertification Dates • Began May 28, 2015 • Sent to 144,300 Borrowers over 2 Days • E-mails were sent in addition to Servicer Communications

24. Cohort 1 – Message Testing Signature Block Signature Block

25. Cohort 2 - Details • Sent E-mails to Borrowers with September Recertification Dates • 1st E-mail sent per regulations (95 days prior to Recertification Date) • Sent to 113,272 Borrowers May 29 to June 27 • Servicer Communications were suppressed for eCorrespondence population • Reminders Were Sent to this Cohort (variable intervals)

26. Cohort 2- Dosage Testing

27. Cohort 3 – Details • Sent E-mails to Borrowers with October Recertification Dates • 1stE-mail sent per regulations (95 days prior to Recertification Date) • Sent to 111,680 BorrowersJune 28 to July 28 • Servicer Communications were suppressed for eCorr population • Reminders were sent to this Cohort (variable intervals)

28. IDR Pilot Snapshot (takeaways) CLEAR and SYNCHRONIZED Communications are Essential to Increasing Borrower Response

29. General Servicing Updates Contract Changes Oversight and Monitoring Key Projects and Improvements Strategies and Future Changes Questions and Answers Agenda

30. Third-Party Debt Relief Organizations • Problems we increasingly see: • Large fees for free services • Failure to provide the promised services • Lawsuits filed by the CFPB and state Attorneys General • We do not have general enforcement authority • Providing false or misleading information • Asserting or implying a relationship with ED • Obtaining FSA ID information to sign documents as borrowers • Claiming to be the borrower when calling loan servicer • Changing the borrower’s permanent address with servicer

31. Third-Party Debt Relief Organizations Options for Students and Institutions if you’ve been scammed: • Contact your state government Office of Consumer Affairs or Consumer Protection either within or affiliated with, the Office of the State’s Attorney General • At the federal level, contact the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) have the authority to act against companies that engage in deceptive or unfair practices

32. Income-Driven Repayment Plans • Income-Contingent Repayment Plan (ICR) – 1994 • Income-Based Repayment Plan (IBR) – 2009 • Pay As You Earn Plan (PAYE) – 2012 Revised Pay As You Earn (REPAYE) – 2015 NEW

33. Income-Driven Repayment Plans - REPAYE • Revised Pay As You Earn (REPAYE) – 2015 • Negotiations February – April, 2015 • Consensus reached • NPRM published July 9, 2015 • Final Rule published October 30, 2015 • Early implementation announced (December 2015) #33

34. We are committed to finding new and better ways to communicate with student loan borrowers and to creating a centralized, easier process for repaying loans. The Borrower Bill of Rights outlines a series of actions that make paying for higher education an easier and fairer experience for students and borrowers. FSA is working to develop: A process for borrowers to file complaints involving their federal student aid Higher standards and provide better information to borrowers; and raising the bar for debt collection to make sure that fees charged to borrowers are reasonable and that collectors are fair, transparent, and help borrowers get back on track. Innovative strategies to improve borrowers’ experience and improve customer service Borrower Bill of Rights

35. Federal Student Loan Servicers

36. QUESTIONS? Thank You! John Brooks Business Operations 202-377-4350 John.Brooks@ed.gov Lisa Oldre Business Operations 202-377-3249 Lisa.Oldre@ed.gov