Critical Questions for U.S. Department of Education Following Its Announcement That Specialty Student Loan Servicers Will Take Over Aspects of the Student Loan System

By Winston Berkman-Breen | April 3, 2024

Yesterday, federal student loan borrowers across the country received an email from the U.S. Department of Education (ED) informing them that, beginning in May 2024, “in order to improve the overall borrower experience,” administration of the Public Service Loan Forgiveness (PSLF) and TEACH Grant programs will be transferred in-house and that borrowers will “work with ED directly” instead of a designated student loan servicer. This is misleading and cause for alarm.

As ED describes: to facilitate this transition, PSLF form processing will pause from May through July of this year. Borrowers are directed to a new page on StudentAid.gov to learn more. The program administration is changing, but the email states that borrowers’ loans will remain with their existing servicer.

ED’s recent announcement raises serious concerns about accountability in the student loan system. Specifically, despite the government’s claims, borrowers seeking PSLF will not “work with ED directly,” but instead will work with a set of four private, specialized student loan servicers with Business Process Operations (BPO) contracts. These contracts were awarded in 2020 as part of ED’s Next Gen initiative in an effort to improve customer service. They were given to some familiar (and infamous) players in the current servicing ecosystem: EdFinancial Services, F.H. Cann & Associates, Maximus Federal Services, and Missouri Higher Education Loan Authority (MOHELA). (A fifth recipient, Trellis, is no longer active under these contracts.) These actors were absent from ED’s announcement, which suggests their roles moving forward will be behind the scenes.

This practice is called “white labeling”: work which is performed by servicers is labeled as coming from ED. As the email states, borrowers are said to be “work[ing] with ED directly.” White labeling interferes with regulators and individual borrowers’ ability to hold these companies accountable for servicing failures. When contracted companies perform low-quality services, because their actions are labeled as those of government agencies, their responsibility is obfuscated and blame is deflected to the agency. Given the well-documented history of servicing failures, which has continued during the return to repayment, ED’s decision to white label this work is a huge step backward in protecting borrowers. 

Before this plan is implemented and borrowers begin to interact with specialty student loan servicers operating under the guise of being ED itself, state and federal regulators and law enforcement must clarify critical details about this arrangement. 

Here is an initial list of questions that ED must answer to ensure transparency and accountability and that borrowers will not be harmed by this transition:

1. Will any borrower accounts be transferred as a result of this announcement?
2. Will BPOs ever communicate directly with borrowers?
3. Where will the unprocessed PSLF applications currently on file with MOHELA go?
4. Will PSLF borrowers remain with MOHELA, even if MOHELA is no longer administering PSLF?
5. When a borrower disagrees with a qualifying payment count, to whom do they address that disagreement?
6. Will borrowers be assigned to a single BPO for PSLF purposes, or will multiple BPOs review the same accounts at various times?
7. Will borrowers know which BPO(s) worked on their account?
8. When a borrower submits a complaint about their student loan servicer, but the complaint implicates functions performed by a BPO, how will that complaint be routed? 
9. How will complaints be handled when submitted by various sources, such as:
   • StudentAid.gov,
   • Consumerfinance.gov, and
   • State student loan ombudspersons, financial regulators, and attorneys general?
10. When a borrower submits a complaint about a function performed by a BPO, how will that complaint be routed? Will Federal Student Aid (FSA) be tracking complaints by vendors? Will data on those complaints be shared with state/federal regulators? Will metrics on complaint volume be tracked and reported by the FSA Ombudsman?
11. Are BPOs expected to comply with federal and state consumer protection laws? Does the language included in the 2021 Servicer Extensions and the 2023 USDS contracts also appear in the current BPO contracts?
    • “[s]hall comply with all Federal, State and local laws, rules and regulations applicable to its performance under this contract to the extent State and local laws, rules and regulations are not preempted by Federal law.”

ED’s assertion that borrowers will deal directly with the federal government is alarmingly inaccurate and begs numerous questions that must be answered immediately. The state and federal agencies that routinely oversee student loan servicers must understand how they will be able to distinguish between actions by BPOs, as specialty servicers subject to their authority and consumer protections, from those of the Department itself. Without answers to these questions, regulators and borrowers themselves will be in the dark when it comes to protecting borrowers rights.

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Winston Berkman-Breen is the Legal Director at the Student Borrower Protection Center. Prior to joining the SBPC, Winston was the Director of Consumer Advocacy and Student Loan Advocate at the New York State Department of Financial Services.