Report Examines Massive Overhaul of Student Loan Servicing System

A new National Consumer Law Center (NCLC) report analyzes a Unified Servicing and Data Solution (USDS) contract, set to go live in the spring, and its potential impact on student loan borrowers’ rights and experiences.

Alpha TaylorThe U.S. Department of Education awarded new student loan servicing contracts to five companies last year under the USDS solicitation to improve student loan servicing, provide better customer service to borrowers, and better hold servicers accountable. In the report, “New Federal Student Loan Servicing Contracts, New Promises: Will It Make a Difference for Borrowers,” borrower advocates note that the USDS contract incorporates many of the recommendations they called for to make servicing work better for borrowers.

“The USDS contract presents a better servicing environment for borrowers and offers significant oversight and financial disincentives to reduce servicer misconduct and errors,” said Alpha Taylor, staff attorney at the National Consumer Law Center and author of the report. “The financial disincentive under USDS — particularly the risk of losing revenue for failing to provide quality service to borrowers, if effectively monitored and not watered down — offers some meaningful protection against systemic servicing problems.

Taylor said that while some provisions of USDS will be straightforward to implement and assess, there are several murkier provisions. Also, how the Office of Federal Student Aid implements and oversees them will significantly impact their effectiveness in ensuring quality loan servicing.

“If appropriately funded and implemented, USDS will improve the servicing environment for borrowers,” said Taylor. “Congress must approve the department’s request for additional funding if they want a realistic shot at effective implementation.”

Under USDS, the education department seeks to create a centralized loan servicing environment that will increase its ability to perform effective oversight and meet the needs of borrowers with aims to move full account management, branding, and repayment from the servicers’ websites to studentaid.gov, over the longer term.

The report found that, to ensure a successful transition to the USDS servicing environment, the education department must conduct rigorous oversight and penalize servicers who do not perform in accordance with the new contract.