February 2013 - PESC

FEB RUA RY 2 013
Th e STANDARD NEWS A ND C OM M ENTA RY ON T EC HNOL OGY & STA NDA RDS IN EDUCA T ION
AS LOAN SERVICERS MULTIPLY, SO DO
PROBLEMS FOR STUDENTS, COLLEGE
OFFICIALS SAY
By Michael Stratford
When students or recent graduates come to talk
with Anthony M. Sozzo about repaying their
federal loans, he sometimes struggles with what to
tell them.
It's not that Mr. Sozzo, an associate dean for
student affairs at New York Medical College, is new
to the subject. In fact, he's a 37-year veteran of
financial-aid counseling, and he chairs the
committee on graduate-student issues at the
National Association of Student Financial Aid
Administrators.
But the answers his students are seeking, he says,
like how much they'll owe under an income-based
repayment plan, are increasingly being complicated
by an ever-expanding federal loan-servicing
system.
The number of entities that service the loans
owned by the federal government has risen sharply
over the past several years, from one company in
2008 to 13 as of this month. And the number will
continue to rise; the Department of Education is
scheduled to add nine more servicers by 2014.
Subcontracting may end up raising the total by
more than a dozen.
Keeping up with the increase in servicers has been
a challenge, financial-aid officers say, and at the
individual-borrower level the changes are causing
confusion over what borrowers are expected to
pay and where they should go to manage their
loans.
Federal loan servicing "should not be all over the
place like this," Mr. Sozzo says. "Students are
getting stung, to say the least."
One of the worst problems that has arisen with
the growth in servicers is a lack of consistency in
how they operate, says Mary B.W. Fenton, director
of student aid at the University of New Mexico's
Health Sciences Center.
Borrowers calling different services can "get five
different answers to a question," she says. "And
sometimes even if I were to call just one servicer, I
might get different answers depending on who I
speak to."
Ms. Fenton, Mr. Sozzo, and other aid
administrators point to the income-based
repayment program as emblematic of the
consistency problems.
To apply for the program, borrowers have to
provide documentation of their income. But
different servicers, the administrators say, are
applying different standards for what
documentation is required. Some base monthly
payments on a recent graduate's annual expected
salary, while others rely on a previous year's tax
return.
The discrepancies mean that two students from the
same institution with nearly identical starting
incomes could end up having different monthly
payments, Mr. Sozzo says. Aid administrators say it
is frustrating for them and their students to not be
able to calculate ahead of time what the monthly
loan payments will be.
Growth of Servicing
From the advent of the federal direct-loan
program, in 1993, until a few years ago, the
Education Department contracted out the servicing
on those loans to one company, Affiliated
Computer Services.
But in 2009, the department increased the number
of servicers to account for a sudden increase in its
loan portfolio as it purchased loans made through
the government's bank-based lending program. To
keep up with those loans, the department solicited
bids for additional servicers and selected four:
19 PESC UNLOC K ING T HE P OW ER OF DATA