Wyden, Senators Call for Transparency, Accountability from New Student Loan Servicing Platform

August 05, 2024

Wyden, Senators Call for Transparency, Accountability from New Student Loan Servicing Platform

Washington, D.C. - U.S. Senators Ron Wyden, D-Ore.; Elizabeth Warren, D-Mass.; Chris Van Hollen, D-Md.; and Bernie Sanders, I-Vt., are urging Secretary of Education Miguel Cardona to address potential problems with a new student aid servicing platform.

In an effort to modernize and improve student loan servicing, the Department of Education is transitioning towards a centralized Federal Student Aid servicing platform for all federal student loans, known as the Unified Servicing and Data Solution (USDS) system. However, the senators warn that the new platform appears to lack transparency, making it more difficult for borrowers to hold their student loan servicers accountable.

"While we applaud the Biden administration's efforts to modernize and improve student loan servicing, a preliminary review of publicly available information on this transition suggests that this new system lacks transparency," wrote the senators. "As a result, it will be difficult for borrowers and the federal government to hold servicers and contractors accountable, including the Business Process Operations (BPO) vendors that support account servicers."

As part of this transition, preliminary changes made this spring to specialized servicing, including the Public Service Loan Forgiveness program, suggest that borrowers are being routed to different BPO servicers to do different tasks, and these contractors' roles moving forward may be increasingly "behind the scenes." This breaking up of functions among servicers operating under the same label may create confusion, and it remains unclear how complaints would be routed.

The practice of labeling work performed by individual companies as coming from a single brand is called "white labeling," a process that obstructs regulators and borrowers from being able to hold companies responsible for their low-quality services. These companies label their actions under those of a "government agency," deflecting blame to the agencies themselves.

Moreover, the transition to USDS may pose barriers to identifying and reporting wrongdoing through channels such as borrower complaints to the Consumer Financial Protection Bureau, a key way contractors are held accountable for the harm they have caused borrowers. The Department of Education has withheld payments to student loan servicers that have been shown by bureau reports to be committing errors, such as failing to send timely billing statements to hundreds of thousands of borrowers.

"[C]o-branding or single-branding loan servicers with FSA and allowing BPO vendors to operate in silence without being identified as individual companies threatens to create confusion for borrowers and could lead to a lack of oversight and accountability for servicers' errors," the senators concluded. "FSA must incorporate strong transparency features that enable borrowers to identify the servicer responsible for their loan and hold that entity accountable."

The senators are requesting more information from the Department of Education on its short- and long-term plans to centralize federal student loan servicing under one FSA platform.

Wyden has led the fight to reform the nation's higher education and student loan systems. In May, he wrote to Cardona asking for student debt cancellations for tens of millions of Oregonians and Americans. In March, Wyden contacted the Social Security Administration, the Department of the Treasury, and the Department of Education to end the practice of offsetting Social Security benefits to pay off defaulted student loans. In June, he pressed student loan servicer Navient to cancel all student loans pushed onto borrowers attending fraudulent, for-profit colleges.

The text of the letter is here.

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