Next generation FSA | The future of student loan management

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    Next generation FSA

    The Next Generation Financial Services Environment (Next Gen FSA) is a new, centralized service platform and online portal for federal student loans.

    The US Department of Education hopes the FSA will provide the next generation of more consistent, higher quality federal student loan servicing. It will offer a single web portal for servicing loans, standardized communication with borrowers and improved accountability of service providers.

    Next Gen FSA development began in 2014, but the project had many false starts. The current maintenance contracts have been extended to December 2023 while Next Gen FSA is implemented, with the exception of four servicers who have chosen not to extend their maintenance contracts.

    Some parts of Next Gen FSA have already been implemented. But we’re still waiting for some promised features to start. Below we take a closer look at Next Gen FSA and the future of student loan service.

    What is a Student Loan Servicer?

    A student loan servicer is a company that manages all interactions with borrowers. These interactions include:

    • Send invoices and process payments
    • Answering borrower questions
    • Access to the borrower’s payment history
    • Credit Consolidation Assistance
    • Change repayment plans
    • Evaluation of postponements, requests for deferral
    • Track the progress of forgiveness programs
    • Disbursement of student loans in certain situations
    • All other customer service functions

    Some direct loan service providers specialize in certain areas, such as: In addition, a Private Collection Agency (PCA) specializes in the collection of failed student loans.

    There are currently 9 federal student loan brokers and 11 PCAs. An additional servicer manages the Debt Management and Collections System (DMCS). Since four servicers have announced their exit, the US Department of Education could bring more servicers on board.

    Why a Central Student Loan Platform is Needed

    The service practices in the direct lending program are not standardized. Each servicer has their own websites, billing platforms, employee training programs, protocols for advising borrowers and data analysis.

    This leads to problems when borrowers switch from one service provider to another, as there is no central database with borrower data. Switching to a new service provider is often delayed and information is sometimes lost.

    On the one hand, borrowers have to create a new login for the new service provider’s system. And if you’ve used AutoPay before, you’ll need to sign a new AutoPay contract. Also, the customer service numbers they call if they need help and payment addresses are likely to change.

    Reduced accountability is another negative consequence of a decentralized federal credit management system. Having separate platforms and analytics for each servicer makes it more difficult and expensive for the US Department of Education to monitor and compare service performance.

    Goals for next generation FSA

    The overall goal of the Next Gen FSA Student Loan Processing Platform is to enhance the borrower experience through a single, centralized student loan management system.

    The next generation FSA will also provide financial incentives for better quality student loan servicing by tailoring student loan provider compensation to borrower success. The new servicing volume for student loans is allocated based on past performance to keep borrowers (particularly at-risk borrowers) informed.

    Ultimately, Next Gen FSA intends to better serve borrowers by providing a variety of new tools and resources accessible on the web or through mobile apps. The opening times of the call center in the evening and at the weekend will also be extended. This is how Next Gen FSA wants to achieve these goals.

    A central portal

    Next Gen FSA will provide a single service portal for all borrowers instead of different portals for each servicer. The portal will be available online and via the myStudentAid app.

    There will also be a single toll-free number for customer service. When a borrower calls this number, they will be automatically redirected to the correct servicer. There will only be one website, one email address and one payment address, regardless of who the actual service provider is.

    Since there will be a single, centralized database for all borrowers, changing the servicer simply means that the new servicer will be assigned within the database. This eliminates the risk of bad debts and lost credit. AutoPay contracts do not have to be signed again either.

    Standardization of student loan support

    Next Gen FSA will standardize the data and processing for repayment schedules, deferrals, and deferrals.

    The use of prepayments is a good example of the benefits of standardized service practice. Next Gen FSA automatically applies prepayments to the loans with the highest interest rates (saving the borrower the most money) unless instructed otherwise by the borrower.

    This differs from the current system, which treats a prepayment as an early payment of the next installment. And every servicer has different rules as to which loan or loans receive the prepayment.

    Next Gen FSA will also standardize how Underpayments be applied. If the borrower pays less than due, the payment is used in such a way that as many of the borrower’s loans as possible remain up-to-date.

    Monitoring the student loan service provider’s performance

    With Next Gen FSA, the US Department of Education will be better able to monitor and evaluate service performance. It will also be able to identify and fix service problems more quickly.

    Performance monitoring and oversight are built right into the next generation FSA service platform. All aspects of student loan servicing are tracked through service dashboards and reports. And there will be separate dashboards for borrowers at risk, such as:

    The US Department of Education will be able to publicly publish servicer performance metrics. Performance data is based on aggregated statistics such as:

    • The percentage of borrowers who are current, overdue, or in arrears
    • The percentage of borrowers who will end a call before reaching a customer service representative
    • Response time to a request (e.g. the abandonment rate of calls)
    • The processing time of requests for amortization schedule changes and other requests
    • Rejected application rates
    • Callback charges (i.e. the problems were not adequately resolved after the first phone call)
    • Complaint rates
    • Results of the customer satisfaction survey

    With Next Gen FSA, education will be able to monitor live calls and provide a real-time dashboard for call statistics. In addition, there will be comprehensive and uniform complaint tracking.

    New tools for student loan borrowers

    Next Gen FSA includes new tools for borrowers, some of which are already available. These include:

    • The new website StudentAid.gov: The new site was launched in December 2019 and merged into StudentLoans.gov, FAFSA.gov, FSAID.ed.gov and the student interface to NSLDS.ed.gov.
    • Aidan, the chatbot: Aidan can answer general questions about government grants, including federal student loans. It has been available on StudentAid.gov since May 16, 2021.
    • The mobile myStudentAid app: Introduced in 2018. In addition to having an online version of the FAFSA, it has some student loan information and allows people to sign the Master Promissory Note (MPN) through the app.
    • The annual student loan recognition: Student Loan Confirmation helps students plan and prepare to take federal student loans. It covers the basics of student loan and provides up-to-date information on the student’s government grants and loans, as well as remaining eligibility. It also displays college scorecard data.
    • The credit simulator: Borrowers can use the loan simulator to explore and compare repayment options. This helps borrowers create a personalized repayment strategy.
    • The resource library: The Resource Library has a variety of items related to borrowing and paying back student loans.

    Updated tools include the Borrower Defense Application for Repayment, the Public Service Lending Help Tool (PSLF), and student loan entry and exit advice.

    The Next Gen FSA also provided new tools for college grant administrators by redesigning the Information for Financial Aid Professionals (IFAP) portal and replacing it with the FSA Partner Connect and Knowledge Center.

    Final thoughts

    Ultimately, the Department of Education hopes that the next generation FSA will reduce crime and default by making the service system less complicated. And with a centralized platform, it will be able to provide better oversight of the service providers and adapt more quickly to regulatory changes that affect student loan servicing.

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