February 15, 2024 — Report

In October 2023, millions of student loan borrowers started making payments on their loans for the first time in over three years. Their experiences with federal student loan debt are shaped, in part, by their interactions with the Department of Education’s federal student loan servicers, the companies the government contracts with to collect federal student loan payments and manage borrowers’ accounts. Soon, those companies will operate under new, dramatically overhauled contracts. This report explores the new contract and how it might change borrowers’ experiences.

Managing the $1.6 trillion federal student debt portfolio is an enormous undertaking. The Department’s Office of Federal Student Aid (FSA) relies on five contracted servicers to manage most borrower services, including:

  • Communicating with borrowers about their responsibilities and options to manage their loans and access relief programs;
  • Processing borrowers’ applications for repayment plans and relief programs, and other paperwork;
  • Calculating borrowers’ monthly payments and sending out billing statements;
  • Collecting and applying payments;
  • Tracking and reporting borrowers’ payments and loan status, as well as their qualifying time in various programs; and
  • Discharging balances and sending refunds for approved borrowers in various relief programs.

Unfortunately, many borrowers have had bad experiences with their loan servicers. The problems borrowers have experienced range from frustratingly long call wait times or disconnected calls to more serious errors, such as being provided misinformation that led borrowers to miss out on debt relief or to overpay. These problems—big and small—are pervasive across the servicing companies. There have been numerous lawsuits and investigations against servicers for engaging in unfair conduct, misleading borrowers, and steering them into forbearances even when an income-driven repayment (IDR) plan or other statutory discharge would have been in the borrower’s best interest. Some of these lawsuits
have resulted in billion-dollar settlements.

Recently, the Department acknowledged that during the first month of the return to repayment, its servicers committed numerous errors affecting the accounts of millions of student loan borrowers, including:

  • Failing to properly convert borrower accounts to the new SAVE repayment plan;
  • Sending incorrect monthly bills to borrowers;
  • Sending billing statements to borrowers late or failing to send them at all;
  • Failing to keep borrowers with pending Borrower Defense (BD) applications in forbearance; and
  • Failing to send revised IDR disclosures after converting borrower accounts from the older REPAYE plan to the new SAVE plan.

Currently, the Department is engaged in a massive overhaul of its servicing system. This initiative is called the Unified Servicing and Data Solution (USDS). USDS will go live in the spring of 2024. Under USDS, the Department seeks to create a centralized loan servicing environment that will increase its ability to perform effective oversight and meet the needs of borrowers. The Department has stated that USDS will be a long-term loan servicing solution that will improve the customer service experience for borrowers and better hold servicers accountable. Additionally, over the longer term, the Department aims under USDS to move full account management, branding, and repayment from the servicers’ websites to

The Department has contracted with five companies to service student loans under USDS: Central Research, Inc. (CRI); EdFinancial Services; Maximus Education, LLC; Missouri Higher Education Loan Authority (MOHELA); and Nelnet. All but one of these servicers are continuing, experienced federal student loan servicers. The outlier is CRI, which does not have experience as a federal student loan servicing contractor but has worked as a private collection agency (PCA) for the Department, collecting on defaulted federal student loans.

This report discusses the ins and outs of the USDS contract and focuses on the contract provisions that are most relevant to student loan borrowers’ rights and experiences, including:

  1. How the Department will evaluate servicers’ performance of key borrower-facing tasks;
  2. How the Department will allocate new accounts across servicers;
  3. Servicing of specialty accounts under the Public Service Loan Forgiveness (PSLF)
    program and the Total and Permanent Disability (TPD) discharge program;
  4. Collaboration and co-branding between FSA and USDS servicers;
  5. Servicers’ waiver of sovereign or qualified immunity; and
  6. Procedures to protect borrowers’ accounts during and after servicing transfers.

Additionally, this report identifies potential challenges to implementing the USDS contract provisions, including the Department’s funding challenges and the long history of servicing errors and misconduct by the selected USDS servicers. Finally, we acknowledge that USDS represents an improved servicing environment for borrowers and offer recommendations to ensure a successful transition to the USDS servicing environment.