After nearly three-years in hibernation, monthly student loan payments will restart in 2023. Chaos and confusion are likely, so why is the borrower support system shrinking?
Recent changes to federal student loan servicing contracts include reducing the fees paid to the servicers by 10%, reducing the minimum hours of operation and required services levels, and adding Central Research, Inc. to the list of servicers to replace Oklahoma Student Loan Authority (OSLA).
In March 2023, Nelnet announced the layoff of 550 loan servicing employees. The move comes just two months after the servicer let go 560 servicing employees. While the January’s layoffs were in response to a continued extension of the payment pause, the latest round was blamed on changes to Nelnet’s contract with the Department of Education (ED).
Nelnet, who owns and operates two of the six remaining current federal student loan servicers, said it was notified in February that ED planned to transfer 1 million borrowers to another servicer. While transferring borrowers is not unusual in certain circumstances, Nelnet said this transfer was not based on performance. This was followed by a contract modification which reduced the fees paid to the servicers by 10%.
In a SEC filing, Nelnet noted that ED reduced the minimum weekly hours for contact centers by almost 15%. The rule change means call centers will no longer be open on weekends. On most days, lines will be closed by 5 p.m. Pacific Time meaning borrowers on Pacific or Mountain Time won’t be able to call in the evening. They’ll have to seek out help in the morning or call during their workday.
ED knows that reduced staff and hours will drive up servicers’ hold times. In response, it’s doubling the acceptable minimum “call abandonment” rate from 4% to 8%. It also will ignore the figure when evaluating servicers’ performance during the third and fourth quarters of 2023.
That may provide some relief to servicers, but it won’t help borrowers. “Call abandonment” is the percent of borrowers who hang up after contacting their servicer. This can result from a long hold time, technical problems, or the inability of the servicer to resolve the borrower’s issue. Each abandoned call represents a frustrated borrower who has been let down by the system meant to help them.
A contraction of the borrower support system couldn’t come at a worse time. The payment pause is set to expire sometime in 2023. When it does, as many as 30 million borrowers will enter repayment at the same time. This will trigger a crisis.
Millions of borrowers are struggling to balance fragile household budgets. Renewed student loan payments will hit them like a gut punch. When they reach out to their servicer for guidance, most won’t get through. Left with what they see as no choice, many will fall into delinquency.
A repayment crisis was already likely. The student loan support system was built to handle about 325,000 new borrowers in repayment per month. As many as 30 million borrowers entering repayment will be met with fewer servicing associates, reduced hours, and lower standards, which will only magnify the problem.
Student Connections has prepared for a worst-case scenario in which servicers have no capacity to assist borrowers. In doing so we’ve identified steps schools can take to help their borrowers now.
Student Connections can amplify your school’s efforts, by determining which of your borrowers is most at risk and reaching out to them on your behalf. Our targeted approach ensures you get the best results for your money.
We use a blend of text, email, and phone outreach to connect former students to our team of experienced, highly-trained Borrower Advocates. Throughout the payment pause, they’ve helped over 700,000 borrowers prepare for successful repayment.
Get your outreach program started now. Contact Student Connections today. The sooner you start, the bigger impact you’ll have.