Yesterday, U.S. Secretary of Education Betsy DeVos announced her intent to transform how the Federal Student Aid Fund (FSA) provides customer service to more than 42 million student loan borrowers. The press release regarding the “Next Generation Processing and Servicing” plan can be found here.
In the press release issued late yesterday afternoon Dr. A. Wayne Johnson, the new Chief Operating Officer of FSA commented:
“The FSA Student Loan Program represents the equivalent of being the largest special purpose consumer bank in the world. To improve customer service, we will take the best ideas and capabilities available and put them to work for Americans with student loans. When FSA customers transition to the new processing and servicing environment in 2019, they will find a customer support system that is as capable as any in the private sector. The result will be a significantly better experience for students – our customers – and meaningful benefits for the American taxpayer.”
The anticipated FSA Next Generation Processing and Servicing Environment will provide for a single data processing platform to house all student loan information while at the same time allowing for customer account servicing to be performed either by a single contract servicer or by multiple contract servicers.
This new approach is also expected to require separate acquisitions for database housing, system processing and customer account servicing which will allow for maximum flexibility today and into the future.
Secretary Devos commented further:
“Doing what’s best for students will always be our number one priority. By starting afresh and pursuing a truly modern loan servicing environment, we have a chance to turn what was a good plan into a great one.
I hired Dr. Johnson for his extensive private sector expertise, his fresh perspective and his innovative thinking. After just a few weeks on the job, Wayne has already identified potential ways to modernize FSA and to leverage new technology that will not only enhance the customer service experience for borrowers but will also protect taxpayers.”
As part of the plan, the Department cancelled the current student loan serving solicitation (Solicitation #ED-FSA-17-R-001). The notice of cancellation can be found here.
You can view the Pronouncement on FSA’s Next Generation Processing and Servicing Environment here.
insideARM applauds this announcement. This has the potential to substantially improve the customer experience for student loan borrowers.
On May 22, 2017 insideARM wrote about then pending Solicitation. In the insideARM Perspective for that article we expressed concern about the potential risks associated with a single vendor handling the entire U.S. student loan portfolio. As noted above, the portfolio consists of more than 42 million borrowers. The dollar value of the portfolio is estimated at more than $1.4 trillion.
The plan outlined for the “Next Generation” solution seems to address our concerns. Instead of a single entity handling all three critical elements of the project noted above, (database housing, system processing and customer account servicing) the plan calls for separate acquisitions of those three components. This alone eliminates the possibility of a single point of failure. Further, as noted in the press release, the plan allows for “customer account servicing to be performed either by a single contract servicer or by multiple contract servicers.”
Secretary DeVos announced her intention to hire Dr. Johnson as Chief Operating Officer of FSA on June 20, 2017. insideARM wrote about that announcement on June 21, 2017. In that article, we discussed Dr. Johnson’s background and unique skillset, and commented: “Hopefully, Johnson’s diverse business background and understanding of large scale operations, student loans and customer service will provide the expertise needed to resolve these and many more issues at FSA.”
In our opinion, a single database that contains all information and activity on a consumer’s account is an absolute necessity. The Department currently has four primary servicers: Navient, NelNet, Great Lakes Educational Loan Services, and FedLoan Servicing. It is absolutely crazy for a borrower with multiple loans to potentially have accounts with multiple servicers that do not communicate nor share the same database.
insideARM suspects that the Consumer Financial Protection Bureau (CFPB) will also endorse the concept of a single database. Student loan servicing is high on the CFPB's radar.
The “Next Generation” system must also be nimble and responsive to changing consumer behavior.
Today’s consumers do not want to be restricted to communication via telephone and snail mail. In the private sector, customer satisfaction is now dependent upon “omnichannel” communication. FSA will need to embrace that concept. That means more self-help options. That means greater use of Artificial Intelligence and machine-based learning instead of traditional IVR’s. It means the ability for a borrower to use a smart phone to resolve account issues. That requires the ability to use chat, text, email, and even the potential for communication through social media private messaging channels.
Today’s consumer also wants greater flexibility in how she can make payments. The “Next Generation” solution must address those options.
Finally, privacy and security are significant issues for a database of 42 million borrowers. The servicing and processing environment must be on the forefront of these issues. Dr. Johnson’s experience in the private sector should assist when selecting vendors.
While this new direction is very positive. There is significant heavy lifting ahead. Contracts with the current FSA student loan servicers expire in 2019. To fully implement the new vision will require tremendous effort. In the words of an old country western song: “We've got a long way to go and a short time to get there.”