Next Gen FSA | The Future Of Student Loan Servicing

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

The U.S. Department of Education hopes that Next Gen FSA will provide more consistent and high-quality servicing of federal student loans. It will provide a single web portal for servicing loans, standardized communications with borrowers, and improved servicer accountability.

Development of Next Gen FSA began in 2014, but the project has had many false starts. The current servicing contracts have been extended through December 2023 while Next Gen FSA is being implemented, except for four servicers who have decided to not seek a renewal of their servicing contracts.

Some pieces of Next Gen FSA have already been implemented. But we’re still waiting on several promised features to launch. Below, we take a closer look at Next Gen FSA and the future of student loan servicing.

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

• Sending bills and processing payments
• Answering borrower questions
• Accessing the borrower’s payment history
• Assisting with loan consolidation
• Changing repayment plans
• Evaluating deferment, forbearance requests
• Tracking progress towards forgiveness programs
• Discharging student loans in certain situations
• Any other customer service functions

Some servicers in the Direct Loan program specialize in particular areas, such as Public Service Loan Forgiveness (PSLF), Total and Permanent Disability (TPD) Discharge, and borrowers who have filed for bankruptcy. In addition, a Private Collection Agency (PCA) specializes in the collection of defaulted student loans.

There are currently 9 federal student loan servicers and 11 PCAs. An additional servicer manages the Debt Management and Collections System (DMCS). Since four servicers have announced their plans to drop out, the U.S. Department of Education may bring additional servicers on board.

The servicing practices in the Direct Loan program are not standardized. Each servicer has their own websites, billing platforms, staff training programs, protocols for counseling borrowers, and data analytics.

This causes problems when borrowers switch from one servicer to another since there’s no centralized database of borrower data. The process of moving to a new servicer is often delayed and sometimes information gets lost.

For one, borrowers must create a new login to the new servicer’s system. And if they previously used AutoPay, they must sign a new AutoPay contract. The customer service numbers they’ll call when they need help and payment addresses are also likely to change. 

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

The overarching goal for the Next Gen FSA student loan servicing platform is to improve the borrower experience through a single, centralized student loan management system.

Next Gen FSA will also provide financial incentives for better quality student loan servicing by aligning the compensation of student loan servicers with borrower success. New student loan servicing volume will be assigned based on past performance in keeping borrowers current (especially at-risk borrowers).

Finally, Next Gen FSA intends to better support borrowers by providing a bevy of new tools and resources that can be accessed on the web or through mobile apps. Evening and weekend call center hours will also be expanded. Here’s how Next Gen FSA plans to achieve these goals.

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

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

Since there will be a single, centralized database for all borrowers, switching servicers will simply mean being assigned to the new servicer within the database. This eliminates the risk of lost payments and lost loans. AutoPay contracts will not need to be signed again either.

Next Gen FSA will standardize the data and processing for repayment plans, deferments and forbearances.

The application of prepayments is a good example of the benefit of standardizing servicing practices. Next Gen FSA will automatically apply prepayments to the loans with the highest interest rates (which saves the borrower the most money) unless otherwise instructed by the borrower.

This will differ from the current system which treats a prepayment as an early payment of the next installment. And each servicer has different rules concerning which loan or loans receive the prepayment.

Next Gen FSA will also standardize how underpayments are applied. If the borrower pays less than what is due, the payment will be applied in a manner that keeps as many of the borrower’s loans current as possible.

Through Next Gen FSA, the U.S. Department of Education will be better able to monitor, and evaluate servicing performance. It will also be able to learn about and address servicing problems more quickly.

Performance monitoring and oversight is built directly into the Next Gen FSA servicing platform. All aspects of student loan servicing will be tracked through servicing dashboards and reports. And there will be separate dashboards for at-risk borrowers, such as:

The U.S. Department of Education will be able to publicly release servicer performance metrics. Performance data will be based on aggregate statistics, such as:

Through Next Gen FSA, the Education Department will be able to monitor live calls and provide a real-time call statistics dashboard. There will also be comprehensive, uniform complaint tracking.

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

Updated tools include the Borrower Defense to Repayment application, the Public Service Loan Forgiveness (PSLF) Help Tool and student loan entrance counseling and exit counseling.

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

Ultimately, the U.S. Department of Education hopes that Next Gen FSA will reduce delinquency and default by making the servicing system less complicated. And with a centralized platform, it will be able to provide better servicer oversight and adjust more quickly to regulatory changes that affect the servicing of student loans.