The Obama Administration is committed to improving all aspects of the federal student loan program for borrowers, from applying for a loan through the loan’s repayment. As part of that commitment, Treasury’s Bureau of the Fiscal Service (Fiscal) initiated a joint pilot program with the U.S. Department of Education (Education) for the collection of a small sample of defaulted federal student loans.
The pilot was created to allow Fiscal’s Debt Management Services Division (DMS), which collects delinquent debt on behalf of Treasury and agencies across the federal government, to gain first-hand experience in the collection of student loan debt, to identify and test potential improvements in the collection process, and to inform Education’s broader collections efforts. However, Education retains servicing and collection responsibilities given the size of and the unique nature of the program.
For nearly a year, DMS staff has been working with defaulted federal student loans to help borrowers understand their repayment options, including rehabilitation. DMS has assisted them in resolving their loans in order to reduce defaults, begin repayment and, ultimately, to gain access to longer-term options for managing their debt such as income-driven repayment plans. Fiscal received loans in two tranches totaling approximately 16,200 defaulted federal student loans for approximately 5,700 borrowers. During the pilot’s initial stage, Fiscal conducted extensive borrower outreach and tested messaging to gauge borrower response and explore what actions, if any, help increase response rates.
With work underway for several months, the pilot has highlighted a number of key challenges in the collections process. As expected, severely delinquent borrowers have proven extremely difficult to contact. By the time federal student loans reach default status, a borrower has not made payments for at least 361 days, making student loan borrowers significantly more delinquent than borrowers for other federal debts serviced by Fiscal. Despite updating addresses using databases and manual searches, most outbound calls and letters have gone unanswered.
Moreover, once borrowers are reached, they require much more extensive servicing than borrowers of other defaulted debts. Borrowers in default on their Federal student loans have options for resolving the default that are not available for borrowers of other types of defaulted debts, and we have found that many student loan borrowers are unaware of or are confused by their options.
To address the initial challenges identified through the pilot, Fiscal is testing a number of outreach, borrower assistance, and collection strategies. They include simplifying the information provided by phone and in writing to clarify the options available to borrowers. Fiscal has improved scripts used when communicating options to borrowers and developed a checklist sent to borrowers in the rehabilitation program to help them identify and meet the program requirements. In order to provide borrowers important information more quickly, Fiscal is using email to reach borrowers, who have previously provided consent, in real time. Email also allows Fiscal to provide borrowers the forms they need quickly without the borrower searching online to identify the appropriate form.
Fiscal also has implemented a single-point-of-contact team to help borrowers through the rehabilitation process. Each borrower that enters into a rehabilitation plan will have a dedicated representative that knows their circumstances, and can guide them through each step of the rehabilitation process, from the completion of forms to reminding them to make monthly payments. Borrowers receive the representative’s phone number so they can be easily reached to answer any questions about the borrower’s account or the requirements of the program.
Fiscal still has more to learn about outreach, borrower assistance and collection strategies during the remaining year in the pilot based. As borrowers currently in rehabilitation move through the process, Fiscal will continue to provide dedicated support and will work to transition borrowers who complete rehabilitations back to a student loan servicer with the minimum possible disruption. Throughout the pilot, Fiscal will continue to test strategies, evaluate how to improve the collections process for borrowers, and engage with experts, advocates, and stakeholders for feedback on how to improve borrower outcomes.