The next generation of federal student loan servicing is scheduled to debut in 2019. The Department of Education's new platform, called Next Generation Financial Services Environment (or "NextGen"), aims to integrate the entire student-loan process—from submitting the Free Application for Federal Student Aid ("FAFSA") through payment, processing, and service—into a single website. But NextGen is more than just a technological change. The program is an effort by the Department to "significantly enhance its engagement" with borrowers and "reduce the volume of borrowers that default, improve customer service to delinquent borrowers, and lower overall delinquency levels." Here's what you need to know about NextGen.
Brief Background
In 2009, the Department entered into a five-year contract with 17 large and five small Private Collection Agencies ("PCAs"). By 2014, the Department shifted its debt collection contract to 11 small companies, eventually adding 7 large firms in 2016. However, after years of protests and lawsuits against various student loan servicers, the Department cancelled its defaulted student loan contract as part of its restructuring of federal student loans.
In August 2017, the Department announced NextGen—an initiative to transform the processing and servicing environment to improve customer service, enhance borrower protections, achieve operational efficiencies, and utilize state-of-the-art technologies. The Department recently completed the first phase of its Business Process Operations solicitation, selecting nine companies to submit bids for Phase II: Edfinancial Services, LLC; General Dynamics Information Technology, Inc.; Missouri Higher Education Loan Authority; Nelnet Diversified Solutions, LLC; Oklahoma Student Loan Authority; Pennsylvania Higher Education Assistance Agency; Teleperformance; Trellis Company; and Utah Higher Education Assistance Authority.
Moving Forward
Whichever companies are selected to provide default servicing will need to be prepared to handle the more than 42 million student-loan borrowers with some $1.3 trillion in outstanding loans. To correct past issues, the Department wants servicers that will provide a "world-class customer experience," not just cost efficiencies. Specifically, the Department has noted that companies must "provide tailored customer assistance throughout the life of the loan to ensure that no borrower ever becomes a defaulted borrower, to the maximum extent practicable." Among other things, this will require "making targeted outbound calls to assist customers with resolving loan management/payment issues" and resolving any credit bureau disputes filed by customers or initiated by the credit bureau.
Through the Consolidated Appropriations Act of 2018, Congress mandated that the Department use "common metrics" to judge the performance of servicers. Because all servicers interact with borrowers through the same online platform, NextGen promises to provide the Department with all the information it needs to decide which services to award federal student loan contracts.
Any company hoping to secure a Business Process Operations contract as a part of the Department's NextGen program will need expertise with the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Telephone Consumer Protection Act, and a variety of other state and federal regulations. Troutman Sanders will continue to monitor the Department's NextGen program for federal student loans and related legislative proposals.
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