Democratic senators warn of potential problems with student loan servicing changes

A group of Democratic and left-leaning senators sent a letter to Education Secretary Miguel Cardona on Monday highlighting concerns they have on the upcoming changes to student loan services.  

The Department of Education is in the process of creating a centralized Federal Student Aid (FSA) servicing platform for all federal loans, calling it the Unified Servicing and Data Solution (USDS) system. 

“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,” Democratic Sens. Elizabeth Warren (Mass.), Ron Wyden (Ore.) and Chris Van Hollen (Md.) and Independent Sen. Bernie Sanders (Vt.) wrote in their letter. “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.” 

The biggest concern the lawmakers have is work done on the loans being labeled under a “single FSA brand,” referred to as “white labeling.” 

The senators use the definition of white labeling given by the Student Borrower Protection Center, which states, “white labeling interferes with regulators and individual borrowers’ ability to hold these companies accountable for servicing failures. When contracted companies perform low-quality services, because their actions are labeled as those of government agencies, their responsibility is obfuscated and blame is deflected to the agency.” 

The senators also say it could make it difficult for borrowers to report wrongdoing to the Consumer Financial Protection Bureau, which holds contractors accountable when they make mistakes or harm borrowers.  

They are requesting information on the contracts with companies under this new plan, how borrowers will be able to handle complaints and what the future plans are for the transition.

“[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,” they said. “FSA must incorporate strong transparency features that enable borrowers to identify the servicer responsible for their loan and hold that entity accountable.” 

—Updated at 4:31 p.m.