Background

When borrowers are in school, the college they attend is their main source of information about student loans. The Higher Education Act of 1965 requires colleges to provide student loan entrance and exit counseling to ensure that students understand the terms of their loans.¹ In practice, many schools fulfill this requirement using online training modules that the Department of Education (ED) developed.² Unfortunately, several studies suggest that entrance and exit counseling do not adequately explain loan concepts, leaving some borrowers unprepared for repayment.³

Once students leave college, their primary student loan contact becomes the private or nonprofit organizations with which ED contracts, called servicers. Servicers are in charge of collecting loan payments, advising borrowers on their benefits and options for loan repayment, and answering borrowers’ questions.⁴ They tend to rely on emails and phone calls to reach out to borrowers. Borrowers make monthly payments and make changes to their loans, such as enrolling in a different repayment plan or consolidating their loans, via the online portal or call center of their servicer.⁵

ED, along with federal watchdog agencies, state attorneys general, and nonprofit organizations, has documented shortcomings with student loan servicing.⁶ ED and other organizations have concluded that, historically, servicers too often failed to guide borrowers towards long-term affordable repayment options. ED asserts that, instead of recommending income-driven repayment (IDR) plans, servicers directed many struggling borrowers to loan pauses, which are quick to set up but have time limits.⁷ Borrowers also consistently report that servicers do not screen them for eligibility for the various forgiveness programs.⁸

Following the end of the student loan payment pause in the fall of 2023, servicers have struggled to keep up with the volume of borrower questions as well as applications for IDR plans and loan forgiveness. While servicers had understaffed call centers before the pandemic, call center wait times reached over 70 minutes in October, as many borrowers sought advice about the return to repayment.⁹ Servicer mistakes and technical issues, which occurred before the pandemic, have also increased.¹⁰ Recently, servicers have made mistakes processing payments, have sent out delayed bills, and have struggled to process IDR and forgiveness applications in a timely manner.¹¹ ED, servicers, and other observers attribute servicing problems to several factors, including inadequate funding, compensation structures that do not reward servicers for some types of outreach, unclear guidance from ED, student loan program complexity, and servicer errors.¹²

These servicing mistakes can happen once servicers and borrowers are in contact, but establishing contact is also difficult. ED transfers loans between contractors for a variety of reasons, and borrowers report being suspicious and confused when they receive student loan messages from an unfamiliar company. When borrowers suspect contact from their loan servicer is a scam attempt, they are likely to ignore the letters and phone calls. And borrowers who cannot afford to make their loan payments often see no reason to engage with their servicers, because they do not know that there are options for lowering payments.¹³

ED’s Federal Student Aid (FSA) office, which handles student loan administration and oversees servicers, is in the process of revamping the servicing system. In April 2023, ED awarded new servicing contracts to five organizations. Under the new contracts, the five servicers will manage loans regardless of loan status. Previously, if a borrower defaulted or applied for certain loan forgiveness programs, ED transferred the loan to a specialized contractor.¹⁴ ED will also require servicers to use common design elements and ED co-branding on their communications and websites. These changes should make loan transfers less common and less confusing for borrowers. The new contracts also changed servicers’ compensation structure and the method of assigning loans to servicers.¹⁵ ED hopes these changes will incentivize servicers to put more effort into preventing defaults and screening borrowers for forgiveness programs. In addition, ED will soon modernize FSA’s IT system so it can more closely monitor servicing activities and manage payment transactions directly.¹⁶

Besides overseeing servicers, ED plays a direct role in student loan outreach. While servicers handle day-to-day communication with borrowers, ED is more involved in raising general awareness about federal student loans and publicizing new policy developments. ED’s website provides key information about federal student loan policies.¹⁷ ED also publishes press releases and emails borrowers directly to raise awareness about loan programs and policy changes.

In the current student loan outreach environment, too many borrowers struggle with their loans, unaware that assistance is available. Through interviews with outreach experts working on public benefits programs and student loans, we learned about strategies to reach these disconnected borrowers. In the remainder of the report, we group our findings and recommendations into three categories: outreach methods, messaging, and program enrollment processes.