More than 11% of Americaâ€™s student loan payments are more than 90 days delinquent or, even worse, in default. But the Department of Education is hopeful its new student loan servicing system, slated to debut in 2019, will get federal loan borrowers back on track.
The platform, called Next Generation Financial Services Environment, or â€śNextGenâ€ť for short, aspires to be a one-stop shop for anyone with federal loans to manage.
In advance of NextGenâ€™s arrival, hereâ€™s whatâ€™s new, plus how it could affect you.
Secretary of Education Betsy DeVos created a stir in May 2017 when she announced an overhaul to the federal student loan system. At the time, DeVos proposed awarding a trillion dollarsâ€™ worth of federal loans, spanning 42.3 million customer accounts, to a single loan servicer â€” instead of keeping them spread out among the nine servicers, the contracts for which expire in 2019.
Reactions to the plan cited various pros and cons of a single-servicer platform, but there was pushback from critics who saw a potential monopoly forming, one that would be hard for the government to rein in, let alone serve borrowers best.
After hiring Dr. A. Wayne Johnson to lead the departmentâ€™s Federal Student Aid (FSA) office, DeVos changed plans. In August 2017, the secretary announced a single online platform accessed by multiple servicers â€” NextGen.
The latest proposal kept DeVosâ€™ initial promise of a simpler, more streamlined repayment experience for borrowers but balanced it with more competition among servicers.
With NextGen, youâ€™d only have one URL to bookmark. Even if you have a number of outstanding loans with varying servicers, you would manage every step of your repayment in one place, whether you want to adjust your repayment plan or consolidate your debt.
â€śIt should be easier for borrowers to manage their student loans and to be placed into the most advantageous repayment programs,â€ť said student loan lawyer Stanley Tate. â€śFor instance, a public service employee should get bright, loud, ringing alarms that tell them some of their loans arenâ€™t eligible for forgiveness.â€ť
One complication is that NextGen will feature two sets of user experiences: one for older federal student loan types (such as now-defunct Perkins loans) and another experience for newer loans.
Still, housing all servicers in one place is bound to be a boon for borrowers with multiple accounts. Youâ€™d no longer have to track down the customer service phone number for each of your loans or keep track of sending payments to different places.
Of course, itâ€™ll be a monumental task to upload about 42 million borrowersâ€™ worth of loan information to NextGen. That would fulfill the FSAâ€™s promise of achieving a â€śsingle data processing platformâ€ť that not only serves borrowers but also delivers excellent data about how theyâ€™re being served.
Via the Consolidated Appropriations Act of 2018, Congress mandated the education department use â€ścommon metricsâ€ť to judge the performance of servicers before deciding to award them federal borrowersâ€™ accounts.
Once itâ€™s live, NextGen could take that to the next level.
â€śThere is a lot more latitude for Federal Student Aid to measure servicers against one another, because they will have more data available to them on how servicers interact with borrowers than they currently do,â€ť said Colleen Campbell, who wrote a detailed report on NextGenâ€™s development for the Center for American Progress (CAP).
As Campbell noted, however, the education departmentâ€™s latest solicitation for servicers doesnâ€™t include information on how they would be held in check.
â€śThere has historically been such poor oversight of servicers and other Federal Student Aid contractors that I think itâ€™s difficult to have faith that the organization will do whatâ€™s best for borrowers rather than whatâ€™s most cost-efficient,â€ť Campbell said.
If you peruse the list of companies contending for government contracts to build NextGen, you might notice some familiar names, including Nelnet and the Missouri Higher Education Loan Authority (MOHELA). Youâ€™ll also see technology companies without a background in student loans â€” IBM Corporation is the most recognizable â€” as the education department looks to build the back end of its new servicing platform.
However, Navient â€” currently one of the countryâ€™s largest loan servicers â€” is notably absent. It remains involved, however, as a subcontractor teamed with other servicers.
The company itself is a frequent target of lawsuits, and announced in November that it was taking the Trump administration to court over the education departmentâ€™s handling of servicer contracts, as first reported by Politico. Navient alleges the department broke federal procurement rules during its search for NextGen contractors and put it at a â€ścompetitive disadvantage,â€ť according to the lawsuit.
According to government data, Navient has been one of the most complained-about student loan servicers in recent years. NextGen on the other hand, if it lives up to its promise, could offer improved customer service, easier loan management and a clearer path to being debt-free.
â€śNavient has such a history of poor past performance, it would be difficult to imagine them making it into the new system if there is any integrity in the selection process,â€ť Campbell said. â€śTheir suit strikes me as another blow to that relationship.â€ť
If you have student loans serviced by Navient, you may or may not be happy to learn that either way, it wonâ€™t be operating on its own in the future. When the time comes, youâ€™ll need to lean on NextGen instead.
This article was originally published on Student Loan Hero, which like MagnifyMoney, is owned by LendingTree.
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