Many community college students need access to federal student loans to attend college and complete their program of study. Although community colleges maintain lower tuition costs, students may still need loans to pay for living expenses, such as housing, food, books, transportation, and childcare.
When student borrowers are in school and as they pursue careers, federal loan servicers play a critical role in helping them manage their loan repayment. Loan servicers must establish positive relationships with borrowers to support repayment of their loans. They are also an important partner for community colleges, because their work to support borrowers during repayment can directly impact institutional measures of success, especially their cohort default rate (CDR).
The U.S. Department of Education can sanction institutions, such as with the loss of federal financial aid eligibility, when their official CDR consecutively reaches above 30%. Servicers and schools can work in tandem to help borrowers and reduce an institution's CDR by keeping contact information for borrowers updated; providing counseling and assistance to borrowers during repayment; and locating borrowers who may have left school without any forwarding information.
Federal loan servicers work directly with borrowers to ensure successful repayment and avoid delinquency or default. Servicers are responsible for answering student borrower account questions, processing payments, and helping borrowers explore their benefits and repayment options. The quality of loan servicing revolves around several components that directly affect students’ success to repay their loans:
1. Borrower engagement and ongoing communication play a key role in building trust between servicers and student borrowers. Borrowers may call servicers for assistance and expect their calls to be answered quickly and their issue resolved appropriately. Following college attendance, loan servicers send emails and letters to borrowers to help them prepare for loan repayment. Servicers will also reach out to borrowers who are behind on their payments, taking the opportunity to counsel them on various repayment options based on their income or occupation, and offer advice for how to use borrower repayment tools.
2. Personalized counseling from servicers helps students understand repayment options, such as ways to lower or postpone payments when they are struggling with their monthly installments. Counseling is essential for many borrowers who may be unfamiliar with loan repayment options and unsure of the long-term benefits of each. Counseling also helps students become aware of how to remain in their repayment plan, such as annual income certification for income driven repayment plans.
3. Accurate and timely processing of borrower requests for repayment plan changes or payment postponement reduces confusion for borrowers. When borrowers wish to change repayment plans, apply for a deferment or forbearance, or apply for a loan forgiveness program, it is important that all requests are processed quickly and correctly.
The U.S. Department of Education, Office of Federal Student Aid (FSA) monitors the performance of federal loan servicers to ensure students receive quality customer service. For example, FSA tracks overall customer satisfaction as well as default prevention efforts.
Servicers must also work to update their processes and technology as borrowers’ needs change. Recently, FSA announced the Next Generation Financial Services Environment (Next Gen), which envisions a new servicing platform and a mobile apps for students and borrowers. Servicers will need to adjust to FSA’s new Next Gen requirements which aim to make loan servicing more borrower friendly and leverage digital technology.
Judith Witherspoon is the Senior Vice President of Edfinancial Services.
William Shaffner is the Director of Business Development and Government Relations of MOHELA.
Elena Lubimtsev is the Senior Vice President for Business Development of Edfinancial Services.
