Federal Student Loans:
Education Could Improve Direct Loan Program Customer Service and Oversight
GAO-16-523: Published: May 16, 2016. Publicly Released: Jun 15, 2016.
What GAO Found
The Department of Education (Education) and its contracted loan servicers provide a range of information to borrowers about their federal Direct Loans for higher education, such as repayment plans and procedures, but some borrowers GAO interviewed reported difficulties with contacting servicers through their call centers. Borrowers noted similar concerns in Education's 2014 and 2015 customer satisfaction surveys, and Education identified servicers' call center hours as a key item needing improvement. Education officials said they have no minimum standard for call center hours and each servicer sets its own. As a result, some borrowers have limited access to assistance. For example, a borrower on the West Coast may have an East Coast servicer whose call center hours end at 1:30 p.m. Pacific time (see figure below). A federal taskforce on student loan servicing recommends minimum requirements for effective customer service. Unless Education establishes a minimum standard for call center hours to improve access and align with its strategic goal of providing superior customer service, some borrowers will have difficulty obtaining information to manage their loans, and be more at risk for delinquency or default.
Weekday Hours for All Direct Loan Servicer Call Centers, in Pacific Time
Education has multiple mechanisms to oversee servicers, but key weaknesses limit its ability to manage the Direct Loan program. First, while Education has made improvements in how it tracks borrower complaints, it uses different systems to capture this information and tracks limited information on complaints made to servicers, making it difficult for Education to determine if servicers meet its strategic goal of providing “superior service.” Second, Education rewards servicers with additional loan assignment based on performance metrics and pays servicers for each loan they service, but these metrics and related compensation do not fully align with Education's goals for superior service and program integrity. Education acknowledged there may be a disincentive, in terms of lack of compensation, for servicers to counsel borrowers on debt relief programs that may benefit the borrower but necessitate loan transfer to a different servicer. Similarly, because no performance metrics relate to compliance with program requirements, servicers with more compliance errors experience no reduction in assigned loans, even as their borrowers may experience servicing problems. For example, past compliance reviews found issues with servicers not giving thousands of borrowers a full grace period before repayment began, but these findings had no effect on the amount of Direct Loan accounts the servicers were assigned the next year. Unless Education evaluates and better aligns its servicer performance metrics and compensation with strategic goals, borrowers will continue to be at risk for experiencing errors and poor customer service.
Why GAO Did This Study
Education issued almost $96 billion in Direct Loans for higher education to 9.1 million borrowers during fiscal year 2015. Education contracts with and monitors the performance of servicers that handle billing and other services for borrowers. GAO was asked to examine Education's management of the program.
This report addresses (1) the type of Direct Loan information Education and servicers provide to borrowers, and how accessible it is; and (2) the extent to which Education oversees servicers to manage the Direct Loan program. GAO reviewed Education's contracts, policies, and procedures; analyzed its oversight reports and processes; and reviewed servicer websites and other information provided to borrowers. GAO also interviewed officials from Education, the Consumer Financial Protection Bureau, servicers that serve over 95 percent of Direct Loan borrowers, and a nongeneralizable sample of 24 borrowers selected randomly from Education data.
What GAO Recommends
GAO recommends that Education (1) implement a minimum standard for servicer call center hours, (2) ensure its complaint tracking captures comprehensive and comparable information from servicers, and (3) evaluate and adjust its performance metrics and compensation. Education generally agreed with GAO's findings and recommendations, but expressed the view that its current performance metrics reflect compliance. GAO maintains the metrics do not reflect compliance, as discussed in the report.
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Recommendations for Executive Action
Comments: The Department of Education agreed to establish core hours in the requirements for servicers to help borrowers access live customer service representatives. Education also noted that borrowers can use interactive voice response and web technology to access information from their servicers during periods when live operators are not available. While these are additional tools for borrowers, they do not replace the need for access to live representatives, and, as we note in the report, Education's customer satisfaction surveys of borrowers in 2014 and 2015 raised concerns about the usefulness of servicers' automated voice response systems. Establishing core call center hours in servicer requirements, if implemented as Education described, would meet the intent of the recommendation.
Recommendation: To help address Education's strategic goal of providing superior customer service to borrowers, and to strengthen oversight of the Direct Loan program, the Secretary of Education should develop a minimum standard that specifies core call center operating hours to provide borrowers, including those on the West Coast, with improved access to servicers.
Agency Affected: Department of Education
Comments: Education reported that it will conduct communication and awareness campaigns to ensure borrowers know of the existence and purpose of the feedback system, which includes comprehensive and comparable information on the nature and status of borrower complaints about servicers. One of the communication channels used will be through the servicers. In addition, the agency reported that it will establish a common borrower experience and common branding in the requirements for the ongoing student loan servicing solicitation by, among other things, requiring the creation of a single web portal clearly labeled as representing the agency. Through that system, all borrowers will be ale to access information, make payments, apply for benefits and manage their accounts. When implemented, this new platform, in conjunction with FSA's Feedback System, will collect complaint information at FSA comprehensively.
Recommendation: To help address Education's strategic goal of providing superior customer service to borrowers, and to strengthen oversight of the Direct Loan program, the Secretary of Education should ensure the new unified borrower complaint tracking system includes comprehensive and comparable information on the nature and status of borrower complaints made to both Education and servicers, to allow Education to track trends and better manage the program to effectively meet borrower needs.
Agency Affected: Department of Education
Comments: Education stated that it would evaluate existing and alternative performance metrics and compensation strategies as part of the ongoing student loan servicing procurement. The agency noted that the results of this evaluation, along with information gleaned form other market research conducted in the context of the procurement and proposals submitted by prospective vendors, will be reflected in future servicing contracts.
Recommendation: To help address Education's strategic goal of providing superior customer service to borrowers, and to strengthen oversight of the Direct Loan program, the Secretary of Education should evaluate and make needed adjustments to Direct Loan servicer performance metrics and compensation to improve assessment, including using baseline data, and alignment with Federal Student Aid's strategic goals aimed at superior customer service and program integrity, and to ensure that the assignment of new loans to servicers takes program compliance into account.
Agency Affected: Department of Education