FEDERAL STUDENT 

LOANS

Education Could 

Improve Direct Loan 

Program Customer 

Service and Oversight

Report to Congressional Requesters

May 2016

GAO-16-523

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-16-523, a report to 

congressional requesters

May 2016

FEDERAL STUDENT LOANS

Education Could Improve Direct Loan Program 

Customer Service and Oversight

Why GAO Did This Study

Education issued almost $96 billion in 

Direct Loans for higher education to 

9.1 million borrowers during fiscal year 

2015. Education contracts with and 

monitors the performance of servicers 

that handle billing and other services 

for borrowers. GAO was asked to 

examine Education’s management of 

the program. 

This report addresses (1) the type of 

Direct Loan information Education and 

servicers provide to borrowers, and 

how accessible it is; and (2) the extent 

to which Education oversees servicers 

to manage the Direct Loan program. 

GAO reviewed Education’s contracts, 

policies, and procedures; analyzed its 

oversight reports and processes; and 

reviewed servicer websites and other 

information provided to borrowers. 

GAO also interviewed officials from 

Education, the Consumer Financial 

Protection Bureau, servicers that serve 

over 95 percent of Direct Loan 

borrowers, and a nongeneralizable 

sample of 24 borrowers selected 

randomly from Education data. 

What GAO Recommends

GAO recommends that Education (1)

implement a minimum standard for 

servicer call center hours, (2) ensure 

its complaint tracking captures

comprehensive and comparable

information from servicers, and (3)

evaluate and adjust its performance 

metrics and compensation. Education 

generally agreed with GAO’s findings 

and recommendations, but expressed 

the view that its current performance 

metrics reflect compliance. GAO 

maintains the metrics do not reflect 

compliance, as discussed in the 

report.

What GAO Found

The Department of Education (Education) and its contracted loan servicers 

provide a range of information to borrowers about their federal Direct Loans for 

higher education, such as repayment plans and procedures, but some borrowers 

GAO interviewed reported difficulties with contacting servicers through their call 

centers. Borrowers noted similar concerns in Education’s 2014 and 2015 

customer satisfaction surveys, and Education identified servicers’ call center 

hours as a key item needing improvement. Education officials said they have no 

minimum standard for call center hours and each servicer sets its own. As a 

result, some borrowers have limited access to assistance. For example, a 

borrower on the West Coast may have an East Coast servicer whose call center 

hours end at 1:30 p.m. Pacific time (see figure below). A federal taskforce on

student loan servicing recommends minimum requirements for effective 

customer service. Unless Education establishes a minimum standard for call 

center hours to improve access and align with its strategic goal of providing 

superior customer service, some borrowers will have difficulty obtaining 

information to manage their loans, and be more at risk for delinquency or default.

Weekday Hours for All Direct Loan Servicer Call Centers, in Pacific Time

Education has multiple mechanisms to oversee servicers, but key weaknesses 

limit its ability to manage the Direct Loan program. First, while Education has 

made improvements in how it tracks borrower complaints, it uses different 

systems to capture this information and tracks limited information on complaints 

made to servicers, making it difficult for Education to determine if servicers meet 

its strategic goal of providing “superior service.” Second, Education rewards

servicers with additional loan assignment based on performance metrics and 

pays servicers for each loan they service, but these metrics and related 

compensation do not fully align with Education’s goals for superior service and 

program integrity. Education acknowledged there may be a disincentive, in terms 

of lack of compensation, for servicers to counsel borrowers on debt relief 

programs that may benefit the borrower but necessitate loan transfer to a 

different servicer. Similarly, because no performance metrics relate to 

compliance with program requirements, servicers with more compliance errors 

experience no reduction in assigned loans, even as their borrowers may 

experience servicing problems. For example, past compliance reviews found 

issues with servicers not giving thousands of borrowers a full grace period before 

repayment began, but these findings had no effect on the amount of Direct Loan 

accounts the servicers were assigned the next year. Unless Education evaluates 

and better aligns its servicer performance metrics and compensation with 

strategic goals, borrowers will continue to be at risk for experiencing errors and 

poor customer service. View GAO-16-523. For more information, 

contact Melissa Emrey-Arras at (617) 788-

0534 or emreyarrasm@gao.gov.

 
Page i GAO-16-523 Federal Student Loans

Letter 1

Background 4

Education and Servicers Communicate a Range of Information, 

but Some Borrowers Reported Limited Access to Servicer Call 

Centers 11

Education Has Implemented Mechanisms to Oversee Servicers, 

but Key Weaknesses Limit Its Ability to Manage the Direct Loan 

Program 17

Conclusions 29

Recommendations for Executive Action 30

Agency Comments and Our Evaluation 30

Appendix I Comments from the Department of Education 33

Appendix II GAO Contact and Staff Acknowledgments 36

Related GAO Products 37

Table

Table 1: Monthly Servicer Compensation for Each Borrower, by 

Status 8

Figures

Figure 1: Selected Roles and Responsibilities in the Direct Loan 

Program 6

Figure 2: Sample Information Servicers Provide to Borrowers over 

a Direct Loan’s Life Cycle 12

Figure 3: Weekday Hours for Direct Loan Servicer Call Centers, in 

Eastern and Pacific Time 15

Figure 4: Flow of Direct Loan Borrower Complaints to Education 

and Loan Servicers 19

Contents
Page ii GAO-16-523 Federal Student Loans

Abbreviations

Direct Loan program William D. Ford Federal Direct Loan Program

Education Department of Education

FFEL Federal Family Education Loan 

FSA Office of Federal Student Aid

NFP servicers not-for-profit servicers

PSLF Public Service Loan Forgiveness 

TIVAS Title IV Additional Servicers

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-16-523 Federal Student Loans

441 G St. N.W.

Washington, DC 20548

May 16, 2016

The Honorable Lamar Alexander

Chairman

Committee on Health, Education, Labor, and Pensions

United States Senate

The Honorable John Cornyn

United States Senate

The Honorable Michael B. Enzi

United States Senate

The Honorable John Kline

Chairman

Committee on Education and the Workforce

House of Representatives

The Honorable Virginia Foxx

Chairwoman

Subcommittee on Higher Education and Workforce Training

Committee on Education and the Workforce

House of Representatives

Federal student loans play a crucial role in ensuring access to higher 

education for millions of students each year. In fiscal year 2015, the 

Department of Education (Education) issued almost $96 billion in student 

loans to 9.1 million borrowers under the William D. Ford Federal Direct 

Loan (Direct Loan) Program. Through the Office of Federal Student Aid 

(FSA), Education administers student financial aid programs—including 

the Direct Loan program—that are authorized under Title IV of the Higher 

Education Act of 1965, as amended,1 and oversees the performance of 

contracted loan servicers that handle billing and other tasks, such as 

responding to inquiries from borrowers. Before 2010, many federal 

student loans were originated and serviced by private lenders and 

 1

Pub. L. No. 89-329, 79 Stat. 1232-1254, codified at 20 U.S.C. §§ 1070- 1099d and 42 

U.S.C. §§ 2751-2756b. These programs include the William D. Ford Federal Direct Loan 

Program, Pell Grants, and various campus-based programs.

Letter
Page 2 GAO-16-523 Federal Student Loans

servicers with whom they contracted, through the Federal Family 

Education Loan (FFEL) Program. Today, all new federal loans are Direct 

Loans obtained through Education, and the program has over six times 

as many outstanding loans as it had in 2007.2 As the Direct Loan program 

has grown, news reports and borrower comments have highlighted 

potential administrative problems. You asked us to look at customer 

service and oversight issues within the Direct Loan program. This report 

examines the following questions: (1) What type of Direct Loan 

information do Education and its contracted servicers provide to 

borrowers, and how accessible is it? and (2) To what extent does 

Education oversee loan servicers to manage the Direct Loan program?

To understand borrower perspectives on the Direct Loan information they 

receive from Education and loan servicers, we interviewed a 

nongeneralizable sample of 24 borrowers. Using Education’s data, we 

identified a random sample of borrowers who, as of January 2014, were 

in either (1) repayment, (2) delinquency (less than 270 days), or (3) 

deferment or forbearance.3 Education sent emails informing these 

borrowers of our interest in talking with them, and we interviewed 24 of 

the borrowers who contacted us—8 borrowers in each of the 3 

subgroups. We also reviewed servicer websites for information on federal 

student loans and customer service, as well as a sample of 

communications sent to borrowers at different points in the loan life cycle, 

such as when a borrower is in school or entering repayment. In addition, 

we reviewed summary results, issued in 2014 and 2015, from Education’s 

customer satisfaction survey of borrowers, which we determined were 

sufficiently reliable for the purposes of this report by reviewing information 

about the data and interviewing knowledgeable agency officials. We 

compared information on Education and servicers’ communication with 

borrowers to the goals and objectives in FSA’s Fiscal Year 2012-2016 

 2

The SAFRA Act, enacted as part of the Health Care and Education Reconciliation Act of 

2010, terminated the authority to make or insure new FFEL loans after June 30, 2010.

Pub. L. No. 111-152, § 2201, 124 Stat. 1029, 1074.

3

We used Education’s January 2014 Cost Estimation and Analysis Division’s Statistical 

Abstract, a random sample of federal loans from Education’s National Student Loan Data 

System, from which we selected a stratified random sample of borrowers, split evenly 

among those in three strata: borrowers in repayment, in delinquency, and in either 

deferment or forbearance. We determined these data were sufficiently reliable for the 

purposes of this report by reviewing information about the data and interviewing 

knowledgeable agency officials.
Page 3 GAO-16-523 Federal Student Loans

Strategic Plan and a federal framework for student loan servicing, 

developed by a task force including Education and other federal 

agencies. To develop our analysis of Education’s oversight of Direct Loan 

servicers, we reviewed Education’s policies, procedures, and guidance 

related to servicers; Education’s contracts and monitoring plans for 

servicers; and relevant federal laws and regulations. We analyzed 

information from Education’s quarterly and annual servicer performance 

reports from fiscal years 2010-2015; annual servicer reviews from the 

same period, and other compliance documentation. We interviewed 

officials from FSA, Education’s Office of the Inspector General, and the 

Consumer Financial Protection Bureau.4 We also interviewed 

representatives from all four Title IV Additional Servicers (TIVAS) and the 

largest three not-for-profit Direct Loan servicers—which together serve 

over 95 percent of Direct Loan borrowers—and reviewed supporting 

documentation, such as training procedures and information sent to 

borrowers, from each.5 We reviewed borrower complaint information from 

the FSA Ombudsman, Education’s Program Compliance Complaint 

Tracking System, and servicers we interviewed. In addition, we 

interviewed representatives from several higher education associations 

and other organizations that represent, or include as members, schools, 

borrowers, loan servicers, or financial aid professionals. The views of 

these representatives, as well as those of the servicers we interviewed, 

are not generalizable. We compared information on Education’s servicer 

oversight with criteria outlined in the servicer’s contracts, FSA’s Strategic 

Plan, and actions directed by the President’s Student Aid Bill of Rights.

The findings and recommendations in this report supplement those we 

issued in a written testimony on November 18, 2015, which included 

recommendations for Education to improve its guidance and instructions 

 4

Though Education is responsible for overseeing federal student loan servicer compliance 

with the Direct Loan program, the Consumer Financial Protection Bureau monitors the 

compliance of certain depository institutions and other organizations—including student 

loan servicers with over 1 million accounts—with specific financial consumer protection 

laws and regulations. 12 U.S.C. §§ 5514 – 5516; 12 C.F.R. § 1090.106.

5

One of the not-for-profit servicers we spoke with, Aspire, chose to leave the federal 

student loan market in September 2015.
Page 4 GAO-16-523 Federal Student Loans

to servicers, as well as its process and documentation for monitoring calls 

between servicers and borrowers.6

We conducted this audit from May 2014 to May 2016, in accordance with 

generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based on 

our audit objectives.

As the nation’s largest provider of student financial aid, Education seeks 

to ensure that all eligible individuals can benefit from federal financial 

assistance for education beyond high school. FSA has developed 

strategic goals to help it carry out its mission of “funding America’s future, 

one student at a time” through its programs, including the Direct Loan 

program.7 FSA’s strategic goals that relate to customer service and 

program oversight direct it to:

• Provide superior service and information to students and borrowers. 

This goal aims to actively inform all eligible individuals of their funding 

options, help customers make well-informed decisions, provide better 

services, and improve the customer experience.

• Work to ensure that all participants in the system of funding 

postsecondary education serve the interests of students, from policy 

to delivery. This goal aims to increase FSA’s role in working with 

postsecondary institutions, contractors, and other major participants in 

the overall aid delivery system, to fulfill the organization’s mission 

 6

GAO, Federal Student Loans: Key Weaknesses Limit Education’s Management of 

Contractors, GAO-16-196T (Washington, D.C.: Nov. 18, 2015).

7

The strategic goals cited are part of FSA’s 2012-2016 Strategic Plan, which covers the 

period in which we conducted our work. FSA recently updated its goals for the future in its 

newest Strategic Plan, released in November 2015.

Background

Education’s Strategic 

Goals for Federal Student 

Aid
Page 5 GAO-16-523 Federal Student Loans

more effectively, and consistently champion the promise of 

postsecondary education for all Americans.

• Develop efficient processes and effective capabilities that are among 

the best in the public and private sectors. This goal aims to pursue 

further efficiencies to free up additional resources in the operating 

budget by integrating systems, improving acquisition processes, 

improving risk management, and improving project management.

• Ensure program integrity and safeguard taxpayers’ interests. This 

goal aims for continuous improvement of FSA’s oversight functions to 

maintain program integrity and safeguard taxpayers’ interests by 

using program dollars effectively and efficiently.

Under the Direct Loan program, Education issues several types of loans 

to students and their parents, including Subsidized, Unsubsidized, and 

PLUS Loans (see sidebar).

Education, servicers, and borrowers each have certain roles and bear 

chief responsibility for distinct aspects of the program (see fig. 1). After a 

prospective borrower applies for and is awarded a loan, Education 

originates the loan and disburses it through the borrower’s school. Once 

the loan is disbursed, it is assigned to a servicer responsible for such 

activities as communicating with the borrower about the status of the 

loan, providing information on repayment plans, and processing 

payments. The borrower is responsible for repaying the loan, generally 

upon leaving school, and makes payments directly to the assigned 

servicer.8

 8

Borrowers are not required to make loan payments when they are enrolled in school at 

least half-time or during the grace period—usually 6 months—after a borrower leaves 

school or drops below half-time enrollment. These terms do not apply to PLUS loans 

made to parent borrowers.

Direct Loan Program

Types of Direct Loans

Subsidized loans: available to 

undergraduate students. The government 

pays the interest that accrues while borrowers 

are in school, during a 6-month grace period 

after leaving school, and during periods of 

deferment.

Unsubsidized loans: available to 

undergraduate and graduate students. 

Interest is paid by the borrower.

PLUS loans: available to graduate or 

professional degree students and parents of 

dependent undergraduate students. 

Borrowers are responsible for paying the 

interest.

Direct Consolidation Loans: allow 

borrowers to combine multiple existing federal 

student loans into a single loan with one 

resulting monthly payment. These loans may 

allow borrowers to extend their repayment 

period to up to 30 years, thereby reducing 

monthly payments.

The federal government sets limits on the 

interest rate, loan origination fees and other 

charges, and annual and aggregate amounts 

that can be borrowed.

Source: U.S. Department of Education and GAO analysis of 

laws and regulations. | GAO-16-523
Page 6 GAO-16-523 Federal Student Loans

Figure 1: Selected Roles and Responsibilities in the Direct Loan Program

Education offers a variety of repayment plans for Direct Loan borrowers. 

Under the Standard plan, borrowers have fixed monthly payments with a 

fixed term of 10 years or less.9 Borrowers are automatically enrolled in 

10-year Standard repayment if they do not choose another option. 

Education also offers a range of income-driven repayment plans that 

base monthly payments on income and family size for Direct Loan 

borrowers who meet certain eligibility requirements.10

In addition to being in repayment status, loans may be in (1) deferment, a 

period during which repayment of a loan is temporarily suspended—for 

example, while a student with undergraduate loans pursues additional 

 9

Other repayment options include: (1) a Graduated plan, which starts with lower payments 

that increase every 2 years, for up to 10 years, and (2) an Extended plan, in which 

borrowers have a fixed term of 25 years or less. Monthly payments under this plan may be 

fixed or graduated, and borrowers must have more than $30,000 in loans. These terms for 

Graduated and Extended plans apply to borrowers who entered repayment on or after 

July 1, 2006; other terms may apply to borrowers entering repayment before that date.

10Income-driven repayment plans can help borrowers manage their debt by basing 

repayment amounts, in part, on borrowers’ income. Key features of these plans range 

from lower monthly payments and repayment periods of up to 25 years to forgiveness of 

any remaining loan balances at the end of the repayment period.
Page 7 GAO-16-523 Federal Student Loans

higher education,11 or (2) forbearance, a temporary postponement, 

extension, or reduction of loan payments for up to 12 months that is 

authorized when a borrower cannot make scheduled payments for certain 

reasons, such as financial hardship. Interest continues to accrue on loans 

in forbearance and unsubsidized loans in deferment, while the 

government pays the interest on subsidized loans in deferment. While 

loans are in repayment, deferment, or forbearance status, they are 

serviced by contracted servicers.

When a borrower misses a loan payment, the loan becomes delinquent, 

and the delinquency continues until all payments are made to bring the 

loan current. Loan servicers report all delinquencies of at least 90 days to 

the three major credit bureaus. If a borrower continues to fail to pay their 

loan according to the terms agreed to in the master promissory note,12 the 

borrower will go into default,13 and the loan will be transferred from the 

servicer to Education’s debt collection system and may be assigned to a 

collection agency.

While Education formerly used a single contractor to handle all loan 

servicing, it shifted into performance-based contracts with additional loan 

servicers beginning in 2009.14 These contracts were awarded as part of 

Education’s strategy to increase servicing capacity and improve 

performance by fostering competition among vendors. Currently, 

Education has contracts with four Title IV Additional Servicers (TIVAS), 

 11Other situations in which a borrower may be eligible for a deferment include during a 

period of unemployment, or economic hardship; or a period of active duty military service 

during a war, military operation, or national emergency.

12The master promissory note is the binding legal document that a borrower must sign 

when receiving a federal student loan. It lists the terms and conditions under which the 

borrower agrees to repay the loan and explains their rights and responsibilities as a 

borrower. 

13Default generally occurs after a borrower fails to make a payment for more than 270 

days; 20 U.S.C. § 1085(l); 34 C.F.R. § 685.102(b). However, Education generally 

identifies defaulted loans as those that are 360 days or more past due, because the 

department allows loan servicers 90 days to transfer Direct Loans to Education’s Default 

Resolution Group.

14Under performance-based contracts, the contracting agency specifies the outcome or 

result it desires and leaves it to the contractor to decide how best to achieve the desired 

outcome.

Performance-based 

Servicing Contracts and 

Oversight
Page 8 GAO-16-523 Federal Student Loans

and six not-for-profit (NFP) servicers.15 These servicers receive monthly 

payments from Education for each borrower they service, with the amount 

per borrower based on the status each borrower is in. The monthly 

payments for all servicers for each borrower status are listed in table 1.

Table 1: Monthly Servicer Compensation for Each Borrower, by Status

Borrower status Rate per borrower

In School $1.05

In Grace Period $1.68

In Repayment $2.85

Service Member $2.85

Deferment $1.68

Forbearance $1.05

Delinquent 6-30 Days $2.11

Delinquent 31-90 Days $1.46

Delinquent 91-150 Days $1.35

Delinquent 151-270 Days $1.23

Delinquent 271-360 Days $0.45

Delinquent 361 or More Days $0.45

Source: GAO analysis of servicer contracts. | GAO-16-523

Note: Servicers are paid a single amount for borrowers in multiple statuses. The single amount paid is 

the lowest applicable amount.

 15Loan servicing for the Direct Loan program used to be handled by a single contractor. In 

2009, four Title IV Additional Servicer (TIVAS) contracts were awarded. These four 

servicers handle the vast majority of Direct Loan servicing. In addition, the SAFRA Act 

required the Secretary of Education to contract with eligible Not-for-Profit (NFP) servicers 

and provided mandatory funding for the administrative costs of servicing such 

contracts. Pub. L. No. 111-152, § 2212, 124 Stat. 1029, 1078 (2010). These contracts 

were first awarded in 2011.The Bipartisan Budget Act of 2013 eliminated the NFP

contracting requirement and the mandatory funding. Pub. L. No. 113-67, § 502, 127 Stat. 

1165, 1187. However, Education chose to retain its NFP servicers. As of October 2015, 

FSA had contracts with the following 10 servicers for the Direct Loan program: (1) Four 

TIVAS: Great Lakes, Pennsylvania Higher Education Assistance Agency/FedLoan, 

Navient, and Nelnet; and (2) Six NFPs: Missouri Higher Education Loan Authority, 

EdFinancial, Granite State, Vermont Student Assistance Corporation Federal Loans, 

Cornerstone, and the Oklahoma Student Loan Authority Servicing. A seventh not-for-profit 

servicer, Aspire, chose to leave the federal student loan market in September 2015.
Page 9 GAO-16-523 Federal Student Loans

In administering the Direct Loan program, Education uses numerous 

mechanisms to oversee the performance of its loan servicers. Education 

issues instructions and guidance to servicers that ranges from direction 

on day-to-day operations to contractual changes servicers must 

implement. Education also conducts various monitoring activities to 

manage the program, including annual compliance reviews of servicers, 

independent financial audits, and routine discussions with servicers.

Education uses five performance measures—intended to improve 

customer service to borrowers and reduce borrowers’ delinquency and 

default—to assess loan servicers on a quarterly basis. They are (1) 

customer service satisfaction, based on a survey of borrowers (worth 35 

percent of servicer’s overall score); (2) percentage of borrowers in current 

repayment status, or less than 6 days delinquent (30 percent of score); 

(3) percentage of borrowers more than 90 but less than 271 days 

delinquent (15 percent of score); (4) percentage of borrowers more than 

270 but less than 361 days delinquent (15 percent of score); and (5) FSA 

employee survey results (5 percent of score).16 Loan servicers compete 

twice annually for additional loans based on their relative average 

quarterly performance on these metrics, although TIVAS and NFPs did 

 16Beginning in September 2014, to incentivize loan servicers to provide better customer 

service to borrowers and help them repay their loans on time, Education made changes to 

the servicer performance metrics and their relative weights. In the past, all performance 

metrics were given equal weight at 20 percent each. Now, Education provides more 

weight to the borrower customer service satisfaction metric (35 percent) and to the metric 

regarding the percentage of borrowers in current repayment status (30 percent). In 

addition, TIVAS used to be rated on a customer satisfaction survey of school financial aid 

professionals, but after receiving feedback from school financial aid professionals that 

they had insufficient interaction with loan servicers to evaluate their performance, 

Education eliminated this metric. The customer service satisfaction survey is conducted 

each quarter with approximately 250 borrowers per servicer. Education reported it recently 

switched from a phone survey to an online survey for borrowers. The FSA employee 

survey is administered to any FSA managers who have had contact with a servicer in a 

given quarter.

Servicer Performance and 

New Loan Allocation
Page 10 GAO-16-523 Federal Student Loans

not compete against each other for new loans until March 2016.17 Each 

servicer is assigned an allocation of new loans by dividing that servicer’s 

total score by the combined total scores of all servicers.18 However, some 

types of loans are only handled by a subset of servicers or a single 

servicer. For example, new Consolidation Loans are serviced only by the 

TIVAS, and a single servicer handles all loans in the Public Service Loan 

Forgiveness (PSLF) program, which is intended to encourage individuals 

to work full-time in public service jobs.19

 17Until early in 2015, only the 4 TIVAS received borrower accounts for newly disbursed 

loans; as a result, TIVAS portfolios included a broad range of borrowers from all stages of 

the student loan lifecycle. In contrast, when they entered the program between 2011 and 

2013, the NFP servicers were only assigned loans already in repayment because they did 

not have interfaces to the system used to originate and disburse—and through which 

servicers receive—new loans. NFPs began to receive newly originated loans in January 

2015. From that point, TIVAS and NFPs competed in separate pools, using common 

metrics established in late 2014, for a share of new loan volume, of which NFPs were 

assigned a total of 25 percent. However, the Consolidated Appropriations Act, 2016, Pub. 

L. No. 114-113, 129 Stat. 2242, 2635, required that, as of March 1, 2016, Education must 

assign new student loan borrower accounts to servicers on the basis of their performance 

compared to all loan servicers utilizing established common metrics, and on the basis of 

the capacity of each servicer to process new and existing accounts.

18Loans for an existing borrower may, to the maximum extent practicable, be sent to the 

servicer already holding that borrower’s other loans.

19The Public Service Loan Forgiveness (PSLF) program forgives the remaining balance 

on a borrower’s Direct Loans after the borrower has made 120 qualifying monthly 

payments under a qualifying repayment plan while working full time for a qualified public 

service organization. Loans from other federal student loan programs, such as the Federal 

Family Education Loan (FFEL) Program or the Federal Perkins Loan Program, do not 

qualify for PSLF unless they are consolidated into a Direct Consolidation Loan. Loans 

made through the Federal Perkins Loan Program are low-interest federal student loans for 

undergraduate and graduate students with exceptional financial need.
Page 11 GAO-16-523 Federal Student Loans

Education and contracted servicers communicate a range of information 

about federal Direct Loans to borrowers over a loan’s life cycle, but some 

borrowers reported limited ability to contact their servicers by phone. 

Education and servicers provide information to help borrowers 

understand their responsibilities as recipients of Direct Loans and options 

for meeting their Direct Loan obligations. Borrowers receive initial 

information about their loans and related rights and responsibilities 

through information provided on their promissory note and through 

mandatory entrance and exit counseling that schools provide or that 

borrowers can access through Education’s website.20 In addition, 

Education’s website provides a broad array of general Direct Loan 

program information, including information and a form for repayment 

options, and information on delaying payment through forbearance or 

deferment. Servicers communicate information to borrowers that includes 

payment procedures, processes for delaying payment through 

forbearance or deferment, and alternative repayment plans. They also 

communicate information tailored to borrowers’ loan status, such as when 

they are in school, in a 6-month grace period after leaving school, in 

repayment, or facing delinquency or default (see fig. 2). Servicers 

 20Entrance counseling must be provided to first-time borrowers before the first 

disbursement of the loan. The counseling must include an explanation of the master 

promissory note, the significance of the borrower assuming an obligation to repay a 

student loan, the consequences of default, and sample monthly repayment amounts, in 

addition to other specific information related to the borrower’s rights and responsibilities 

with respect to the loan, and the terms and conditions of the loan. Exit counseling must be 

provided before a student leaves school. Exit counseling includes a review of the 

information provided during entrance counseling, an estimate of average anticipated 

monthly payments based on the borrower’s actual student loan debt or the average 

student loan debt of borrowers in the same program at the same school, specific 

information about available repayment options and debt management strategies, and 

information about whom the borrower may contact regarding questions about the terms 

and conditions of his or her loan. See 20 U.S.C. § 1092(l) and 34 C.F.R. § 685.304(a) for 

entrance counseling requirements and 20 U.S.C. § 1092(b) and 34 C.F.R. § 685.304(b) 

for exit counseling requirements. 

Education and 

Servicers 

Communicate a 

Range of Information, 

but Some Borrowers 

Reported Limited 

Access to Servicer 

Call Centers
Page 12 GAO-16-523 Federal Student Loans

communicate information to borrowers using web-based technology, such 

as online accounts, as well as email, mail, and by phone.21

Figure 2: Sample Information Servicers Provide to Borrowers over a Direct Loan’s Life Cycle

a

Correspondence that introduces borrowers to their new assigned servicer, specifies services 

provided, and identifies servicer contact information. Servicers also provide welcome letters when a 

loan is transferred to a different servicer.

b

Information to help borrowers manage their personal finances and manage loans.

c

Correspondence that informs the borrower that a new servicer will be servicing the borrower’s loan.

d

Early delinquency refers to that period of time beginning on the first day when a borrower misses a 

loan payment, reflecting an account that is no longer current.

e

Borrowers are considered to be approaching default status as their loan draws closer to becoming 

270 days delinquent.

f

Correspondence that demands payment on defaulted loans and advises the borrower of related 

consequences, such as reporting loan status to credit bureaus.

 21While the Telephone Consumer Protection Act of 1991, Pub. L. No. 102-243, 105 Stat. 

2394, placed certain restrictions on how wireless phones could be contacted, the 

Bipartisan Budget Act of 2015, Pub. L. No. 114-74, 129 Stat. 584, 588, allows for the use 

of automatic dialing systems when contacting wireless phones in the collection of debt 

owed to or guaranteed by the United States without the need to obtain the borrower’s prior 

express consent. That Act required the Federal Communication Commission to issue 

implementing regulations by August 2016. 
Page 13 GAO-16-523 Federal Student Loans

While Education and servicers provide a range of information, many 

borrowers have limited telephone access to their assigned servicers to 

obtain information they need to manage their loans. Education lacks a 

minimum standard for servicer call center hours and allowed servicers to 

specify their own call center hours. As a result, Education has approved 

widely variable hours for servicer call centers. Six of 24 borrowers we 

interviewed reported difficulties in contacting their assigned servicer by 

phone outside of work hours. Three of these borrowers said they 

experienced a range of adverse effects at least in part due to limited 

servicer hours, such as missing opportunities to participate in alternative 

payment plans when their income changed, falling behind on payments, 

or slipping into delinquency (see sidebar).22 Borrowers also noted similar 

concerns regarding call center accessibility in summary results from 

Education’s 2014 and 2015 borrower satisfaction surveys. In both years, 

Education identified servicers’ call center hours as a key item needing 

improvement—a focus that would align with FSA’s strategic goal of 

providing superior customer service.

Given that servicers work with borrowers in multiple time zones, call 

center hours can adversely affect borrower access in different parts of the 

country, with particular limitations for borrowers on the West Coast. For 

example, West Coast borrowers with an East Coast servicer whose call 

center hours end at 1:30 p.m. Pacific time (4:30 p.m. Eastern time) 

cannot contact their assigned servicer by phone in the afternoon or 

evening. We found that 3 of 10 servicers close at or before 6 p.m. Eastern 

time, or 3:00 p.m. Pacific time Monday through Friday—up to 4 hours 

before most other servicers. Furthermore, four servicers offer limited call 

center hours on Fridays, closing 1 to 4 hours earlier than on other 

 22We earlier reported that Education has taken steps intended to increase borrower 

awareness of income-driven repayment plans, but has not consistently provided 

information about these plans to borrowers who have entered repayment. Once borrowers 

enter repayment, Education primarily relies on its loan servicers to communicate directly 

with them about repayment options. Although Education requires loan servicers to send 

certain communications to borrowers who already participate in income-driven repayment 

plans, it has not established specific requirements for how servicers communicate with 

other borrowers about the plans. In this report, we recommended that the Secretary of

Education take steps to consistently and regularly notify all borrowers who have entered 

repayment of income-driven repayment plan options, including Income-Based Repayment 

and Pay As You Earn. See GAO, Federal Student Loans: Education Could Do More to 

Help Ensure Borrowers Are Aware of Repayment and Forgiveness Options, GAO-15-663 

(Washington, D.C.: Aug. 25, 2015) for additional information. 

Sample Comments from Direct Loan 

Borrowers Interviewed by GAO

“Having more customer service hours late 

in the day would help me obtain more 

timely information about repayment plans 

that would match what I could afford to 

pay.” 

—Borrower in repayment

“Greater opportunity to contact servicers 

would help me better align my loan 

repayment amount with my planned 

career and income.”

—Borrower in deferment

“Because I could not contact the loan 

servicer on my own terms, my credit 

score took a big hit, it caused a lot of 

stress, the list goes on.”

—Borrower in delinquency

Source: GAO interviews with Direct Loan borrowers. | 

GAO-16-523 
Page 14 GAO-16-523 Federal Student Loans

weekdays. Together, these limited weekday hours and early closings on 

Fridays affect customer service access for about 8.6 million Direct Loan 

borrowers. Only 1 of the 10 servicers offers call center hours on 

weekends, and it also operates 24 hours a day (see fig. 3). When servicer 

call centers are closed, borrowers are connected with an automated voice 

response system. However, summary results of Education’s customer 

satisfaction surveys of borrowers in 2014 and 2015 showed that 

borrowers also had concerns about the usefulness of servicers’ 

automated voice response systems when trying to obtain additional 

information.
Page 15 GAO-16-523 Federal Student Loans

Figure 3: Weekday Hours for Direct Loan Servicer Call Centers, in Eastern and 

Pacific Time

a

These servicers have reduced call center hours on Fridays.

While loan servicers communicate with borrowers through various means, 

some servicers we contacted said phone calls are a key way they 

connect with borrowers to provide information when an account’s status 

changes or to help avert delinquency and default. For example, one 

servicer said borrowers have a need for information when a loan goes 

into forbearance or deferment or when there is a change in the repayment 

schedule, while a second servicer said it calls borrowers to provide 

information when a loan is transferred to a different servicer. Another 

servicer we spoke with emphasized borrower habits that help make them 
Page 16 GAO-16-523 Federal Student Loans

successful in managing their loans, including directly reaching out to 

servicers by phone to avoid delinquency or default. The servicer said 

borrowers who remain connected with their servicer feel more responsible 

for effectively managing their loans and are less likely to default. 

Borrowers also find it helpful to communicate directly with servicers. For 

example, some borrowers experience unanticipated income changes that 

affect their ability to make loan payments on time or in the required 

amount. Borrowers we interviewed said during these times, they find it 

most helpful to speak directly with servicer representatives about their 

unique and changing needs.

In 2015, Education, the Department of the Treasury, and the Consumer 

Financial Protection Bureau developed a framework for student loan 

servicing, as directed by the President’s Student Aid Bill of Rights. This 

framework states that borrowers and servicers alike would benefit from a 

clear set of minimum requirements for services provided by student loan 

servicers and for servicer communications with borrowers, including 

adequate and timely customer service.23 Though Education has no 

minimum standard for servicer call center hours, it has recognized the 

importance of such a standard in other contracts. We previously reported 

that Education has a customer service standard requiring its Common 

Origination and Disbursement contractor to provide phone access for 

borrowers and others from 8:00 a.m. to 8:00 p.m. Eastern time.24

Education officials told us these hours are now from 8:00 a.m. to 11:00 

p.m. Eastern time. Similarly, the Internal Revenue Service provides 

standard call center hours of 7:00 a.m. to 7:00 p.m. local time, Monday 

through Friday. In addition, the World Bank Group’s International Finance 

Corporation guidance for establishing hours of call center operations 

states that call center hours should be periodically reviewed and revised 

based on an assessment of customer demand.25 Education officials said 

 23U.S. Department of Education, Strengthening the Student Loan System to Protect All 

Borrowers. October 2015. 

24This customer service standard requires that the contractor provide bi-lingual (English 

and Spanish) phone support to schools, students, parents, and borrowers Monday 

through Friday from 8:00 a.m. to 11:00 p.m. Eastern time. For related information, see 

GAO, Managing For Results: Selected Agencies Need to Take Additional Efforts to 

Improve Customer Service, GAO-15-84 (Washington, D.C.: Oct. 24, 2014). 

25International Finance Corporation, World Bank Group, Designing and Building a Call 

Center for Mobile Money Financial Services, extracted from www.ifc.org, December 2015.
Page 17 GAO-16-523 Federal Student Loans

they will consider making changes to call center hours as they recompete 

servicer contracts in 2016, by taking into account factors such as 

practices in the commercial marketplace. However, Education’s lack of a 

minimum standard for servicer call center hours, and the limited hours 

currently provided, impede borrowers’ access to customer service that is 

responsive to their needs and puts them at greater risk of delinquency or 

default.

Education has a variety of mechanisms to conduct oversight of the Direct 

Loan program and to help ensure that servicers comply with Direct Loan 

federal requirements. Our analysis found that these oversight 

mechanisms fall into three main categories: performance monitoring, 

compliance monitoring, and internal coordination groups. For examples of 

these mechanisms, see sidebar.26

 26We commented on Education’s monitoring of phone calls between servicers and 

borrowers in a previous testimony, which found that there were weaknesses in the 

processes for selecting calls to be monitored and for documenting results. To address 

these findings, we recommended that Education improve its methodology for monitoring 

calls between servicers and borrowers, and improve documentation of its call monitoring. 

For more details, see GAO-16-196T. 

Education Has 

Implemented 

Mechanisms to 

Oversee Servicers, 

but Key Weaknesses 

Limit Its Ability to 

Manage the Direct 

Loan Program

Education Oversees 

Servicers but Lacks a 

Comprehensive Way to 

Track Borrower 

Complaints 
Page 18 GAO-16-523 Federal Student Loans

Education officials said that they continuously review their oversight 

processes by checking to see what works, identifying opportunities for 

issues to focus on for review, and determining the effectiveness of 

resolutions. While Education uses multiple mechanisms to oversee 

servicers, it lacks a systematic way to capture all borrower complaints, 

including those received through servicers, and make improvements. 

Education currently relies on various entities, including FSA’s 

Ombudsman27 and servicers, to collect and resolve complaints on a 

broad range of issues.28 Education records borrower complaints in a 

dozen different systems within the department, including the Ombudsman 

Case Tracking System, and the Program Compliance Complaints 

Tracking System.29 In addition, each of the 10 servicers also receives 

borrower complaints pertaining to their Direct Loans (see fig. 4).

 27The FSA Ombudsman’s Office was established by the Higher Education Amendments 

of 1998, Pub. L. No. 105-244, 112 Stat. 1581, 1609. The Ombudsman is a resource for 

borrowers to use when other approaches to resolving student loan problems have failed. 

The Ombudsman uses informal dispute resolution processes to address complaints about 

the Title IV financial aid programs, including the Direct Loan program. 

28Other Education entities involved in borrower complaint tracking include FSA’s 

Information Center, FSA’s servicer liaisons, FSA’s Research and Customer Care Center, 

and the Office of Inspector General, among others.

29According to Education officials, Education receives complaints, referrals, and inquiries 

regarding student loan programs through its Program Compliance Complaints Tracking 

System. Complaints in the Program Compliance Complaints Tracking System originate 

from several sources, including directly from borrowers, loan servicers, and schools. 

Examples of Education’s Direct Loan 

Oversight Mechanisms

Performance Monitoring

Phone call monitoring: review calls between 

servicers and borrowers to determine if 

servicers are providing accurate information 

and acceptable customer service. 

Complaint systems: track and resolve 

borrower complaints received by Education 

and servicers.

Quarterly and annual performance reports: 

gauge servicer performance against 

performance metrics; results are used to 

assign new loans and to regularly monitor that 

the servicers are meeting key requirements.

Compliance Monitoring

Annual program compliance reviews: 

assess servicer compliance with program and 

contract requirements.

Catalog of identified financial deficiencies: 

corrective action plans that servicers must 

implement to address problems found by 

Education in servicers’ annual financial 

statements.

Annual servicer financial audits: results 

inform Education’s annual overall assessment 

of Education’s internal controls over financial 

reporting.

Annual contract monitoring plans: 

Education uses to track and monitor servicer 

process issues and financial matters, 

including activities related to performance 

issues and annual servicer financial audits.

Internal Coordination Groups

FSA’s Operating Committee: meets weekly 

to coordinate responses on Direct Loan issues 

that require immediate executive-level 

attention.

Financial Monitors and Escalated Issues 

Group: meets weekly to identify, monitor, and 

track resolution of financial issues.

Monthly Risk Management Committee: 

identifies and tracks Direct Loan risks and 

corrective action plans identified through OIG, 

GAO, or financial statement audits.

Servicer Monitoring Group: meets monthly 

to monitor, analyze, and escalate servicer 

performance issues to the office of FSA’s 

Chief Operating Officer.

Source: GAO analysis of information from Department of 

Education interviews and documents. | GAO-16-523
Page 19 GAO-16-523 Federal Student Loans

Figure 4: Flow of Direct Loan Borrower Complaints to Education and Loan Servicers

Differences in complaint categories maintained by Education and 

servicers do not allow for easy comparison of data, and therefore present 

challenges in determining overall trends in borrower complaints. For 

example, we found that two of Education’s key complaint tracking 

systems, its Program Compliance Complaints Tracking System and its 

Ombudsman Case Tracking System, and the systems maintained by six 

of the seven loan servicers we contacted, used a combined total of at 

least 74 different complaint categories from 2012 through 2014. Only 17 

of these were used by both servicers and Education.30 In 2015, Education 

began requiring each servicer to provide monthly reports on the number 

of borrower complaints received, organized into 23 different categories. 

While this helps to streamline and standardize how servicers are 

 30Servicers we contacted provided us with a range of information for the categories they 

used to track borrower complaints. For example, some servicers provided us with more 

detail on the categories, breaking them down into subcategories, while others provided us 

with less. The servicer complaint category information also covered different time periods: 

some servicers provided information for one fiscal quarter, while others provided 

information that spanned a year or more. While this data is not representative of all 

complaints used by all servicers and does not always match in time periods covered, it 

provides information on the types of categories used by servicers and Education, including 

the categories they had in common through fall 2015.
Page 20 GAO-16-523 Federal Student Loans

reporting borrower complaints to Education, these reports do not have 

sufficient information for Education to understand the nature of the 

specific issue raised by the borrower. For example, according to 

Education, in August 2015, servicers reported a monthly total of 8,445 

complaints in the category of “service quality,” and 3,956 complaints for 

“payment issues,” but Education officials told us they did not receive any 

further information on what was actually contained in these complaints. 

Further, Education’s definitions of these categories are also very broad: 

“service quality” includes any complaint regarding a customer service 

representative or poor customer experience, with issues ranging from 

correspondence never received to dissatisfaction with the servicer or 

quality of the customer service representative; while “payment issues” 

can include unapplied, missing, or duplicate payment issues, questioning 

a payment or payment posting, or reapplication of payments including 

those made at a prior servicer. In addition, Education does not use all of 

the same 23 servicer complaint categories in its own complaint tracking 

systems, and has yet to harmonize the different complaint categories and 

formats in the complaint tracking systems used by its various offices. 

Education officials told us that they review the escalated complaints 

Education receives with the servicers and obtain related data from them, 

and that they are in the process of organizing complaint categories and 

their alignment with those of other Education offices. However, these 

multiple, different complaint categories make it difficult for Education to 

collectively examine, compare and prioritize specific information and key 

issues, and to determine if further actions are needed to ensure servicers 

meet the agency’s strategic goal of providing “superior service and 

information to students and borrowers.”

In March 2015, the President signed a Student Aid Bill of Rights which 

requires that by July 1, 2016, Education develop and implement a simple 

process for borrowers to file complaints regarding federal financial aid 

and track their resolution.31 As of February 2016, Education officials said 

they had completed design of the planned unified system and were in the 

process of building and testing it. Education officials said they were on 

track to fully implement this new system by the July 2016 deadline. 

Education officials said the new unified system will generate more robust, 

 31See Presidential Documents, Memorandum of March 10, 2015 – Student Aid Bill of 

Rights to Help Ensure Affordable Loan Repayment, 80 Fed. Reg. 13,475 (Mar. 13, 2015).
Page 21 GAO-16-523 Federal Student Loans

standardized borrower complaint information from across various 

Education functions. In addition, Education officials said that borrowers 

will be able to enter and track their own complaints in this new system, 

and partner portal functions will allow responsible entities, such as 

servicers, to respond directly to a borrower complaint received by 

Education. Education officials said they will also be able to use the 

complaint tracking system to gather analytical data to determine trends, 

help inform oversight, drive service improvements, and produce reports to 

publish on its public website.

While this new complaint tracking system will be a positive step toward 

providing better information to Education, servicers, and borrowers, 

certain shortcomings and uncertainties will remain. According to 

Education officials, the new system will not initially include the content 

from borrower complaints received by servicers. Education officials said 

that the new Education complaint tracking system and the servicer 

complaint processes serve two separate purposes: the servicer complaint 

process is intended for initial use by customers and to provide satisfactory 

resolution quickly and efficiently for cases that do not require the 

intervention of the department; while Education’s new complaint tracking 

system is intended to be used by customers who have a case that cannot 

be, or was not, satisfactorily resolved by their servicer or for customers 

who may be reluctant to submit a complaint through their servicer. One 

Education official also said that there are challenges to integrating the 

servicers’ complaint information into the department’s new complaint 

tracking system, as there are 10 servicers with 10 different systems for 

collecting complaint information, and there is no requirement for them to 

have a common storage system or format. Further, Education officials 

said that they did not want to depend on each customer service agent 

across all servicers to decide what gets entered into the new complaint 

tracking system, as even with extensive training, there would be 

differences in interpretation. Education officials said that in the current 

contract environment they will continue to separately collect from each 

servicer the number of complaints received in 23 complaint categories. 

Therefore, even though servicers will be able to use the new system to 
Page 22 GAO-16-523 Federal Student Loans

respond to complaints that Education receives directly, Education will still 

not see the thousands of complaints that servicers receive.32

While Education has taken steps to improve and streamline how it tracks 

the borrower complaints it receives, by not including the thousands of 

complaints collected each month by servicers, Education will continue to 

lack full information on all borrower complaints. Federal internal control 

standards state that an agency’s management should ensure there are 

adequate means of communicating with, and obtaining information from, 

external stakeholders that may have a significant impact on the agency 

achieving its goals.33 In addition, Education has identified an integrated 

borrower complaint tracking system as a key mechanism to enhance 

oversight and customer service.34 By not collecting all borrower complaint 

information, Education will not be able to comprehensively analyze and 

readily address overall trends, and respond to the full array of borrower 

complaints, impeding its ability to ensure that the Direct Loan program 

fully meets its strategic goals of providing superior customer service and 

effectively meeting borrower information needs.

 32Relatedly, we found in our prior work that while borrowers primarily provide direct 

feedback online or on the phone to a servicer, Education officials do not provide any 

criteria or process by which the servicer would elevate customer feedback, and 

recommended that Education develop a feedback mechanism that includes guidance or 

criteria for service providers to elevate customer feedback to identify the need for and to 

make service improvements. See GAO, Managing For Results: Selected Agencies Need 

to Take Additional Efforts to Improve Customer Service, GAO-15-84 (Washington, D.C.: 

Oct. 24, 2014).

33GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999).

34U.S. Department of Education, Strengthening the Student Loan System to Better Protect 

All Borrowers (Washington, D.C.: Oct. 1, 2015).
Page 23 GAO-16-523 Federal Student Loans

As noted previously, Education currently bases its allocation of new 

borrower accounts to servicers on performance metrics aimed at 

improving customer service to borrowers and reducing borrowers’ 

delinquency. Education compensates servicers based on the status of the 

borrowers they service. However, these metrics and the related 

compensation structure can sometimes hinder Education’s strategic goals 

of providing superior customer service and ensuring program integrity.

While Education uses the results of a quarterly customer satisfaction 

survey as one of its current performance metrics, all seven servicers we 

interviewed raised concerns that other aspects of the performance 

metrics and the compensation structure conflict with the overall goal of 

providing borrowers quality customer service. For example, Education 

officials told us they do not adjust servicer compensation for portfolio 

losses or gains when a borrower’s account moves to a different servicer, 

such as when a borrower chooses to consolidate multiple federal loans 

into a Direct Consolidation Loan, which only the TIVAS can service. In 

addition, consolidations can help make borrowers eligible for debt relief 

programs such as Public Service Loan Forgiveness (PSLF),35 and all 

loans that Education certifies for PSLF are transferred to one servicer.36

Because servicers are not compensated for their loss when a loan is 

transferred, in effect, they are paid less than if they were able to keep all 

of their assigned loans.

Education officials acknowledged that the lack of compensation for 

transferred loans could be a disincentive for servicers to counsel 

borrowers about loan consolidation and PSLF. They said that they believe 

their oversight efforts discourage servicers from acting on this potential 

disincentive. They also said they do not currently account for any 

transfers in servicer compensation because it is complicated to include 

 35Beginning in 2017, the PSLF program will offer loan forgiveness on the remaining Direct 

Loan balances of borrowers who complete at least 10 years of qualifying public service 

employment and meet other requirements. 

36In January 2012, Education established a process to certify borrowers’ public service 

employment and loans for PSLF. Education officials said that due to the additional 

requirements of servicing PSLF, the government conducted a competition across all 

TIVAS to identify a single servicer to handle all loans certified for PSLF. Borrowers may 

submit information about their employment at any time or wait until they apply for loan 

forgiveness beginning in October 2017.

Education’s Servicer 

Performance Metrics and 

Compensation Do Not 

Fully Align with Strategic 

Goals for Ensuring Quality 

Customer Service and 

Program Integrity
Page 24 GAO-16-523 Federal Student Loans

them when they affect a relatively small portion of the overall loan 

portfolio. Education officials said they want to keep the performance 

metrics and related compensation simple and straightforward. However, 

while as of March 2016, Direct Consolidation Loans only represented 

about 8 percent of all Direct Loans, about 6 million borrowers had them. 

Relatedly, Education’s loan servicer for the PSLF program reported that it 

had certified employment and loans for fewer than 335,000 borrowers in 

2015, while our prior work found that the number of eligible borrowers 

was likely far higher; certification is voluntary and we estimated that about 

4 million borrowers may be employed in public service.37 We also found in 

our earlier work that Education had not assessed its efforts to increase 

borrower awareness of PSLF.38 Education primarily relies on loan 

servicers to communicate with borrowers who have entered repayment, 

and while loan servicers make information about PSLF available through 

their websites and customer service representatives, borrowers do not 

seek this information if they are not aware the program is available. 

Therefore, a disincentive for servicers to counsel borrowers about the 

program could prevent additional eligible borrowers from benefitting from 

it. Education officials told us that they will consider making changes to 

performance metrics and the basis for compensation, to account for PSLF 

and consolidation transfers when they recompete servicer contracts in 

2016, but have not done so yet.

Some servicers we interviewed also expressed concern that the time 

frames Education uses in its delinquency performance metric affect 

servicer incentives to provide quality customer service. In October 2014, 

Education changed how it defines a borrower as delinquent in both the 

servicer performance metrics and related compensation structure. All 

servicers are now held accountable for borrowers who miss a payment by 

more than 5 days. Prior to October 2014, TIVAS servicers did not have a 

delinquency performance metric, and instead were evaluated on the 

percentage of borrowers in default and the percentage of their portfolio in 

default. NFP servicers were evaluated on the percentage of borrowers 

 37See GAO, Federal Student Loans: Education Could Do More to Help Ensure Borrowers 

Are Aware of Repayment and Forgiveness Options, GAO-15-663 (Washington, D.C.: Aug. 

25, 2015). Our estimate for 4 million borrowers who may be employed in public service is 

based on 2012 annual employment data from the Bureau of Labor and Statistics.

38GAO-15-663.
Page 25 GAO-16-523 Federal Student Loans

who had missed payments by 90 days or more, and on their success in 

curing borrower delinquencies that were 180 days or greater.39 Education 

officials said they originally wanted the delinquency metric and related 

compensation to start at zero days instead of after 5, but decided to 

extend it to allow for later automatic postings to borrower accounts from 

electronic payments. Education officials said that in assessing the 

process through which borrower payments are posted to their accounts, 

they determined that some payments scheduled near the end of a month 

may not be posted for up to 5 days because of holidays, weekends, and 

processing time for payments to be made to the lockbox maintained by 

the Department of the Treasury, in addition to time needed for payment 

postings to be reported to servicers. Education officials also said they 

made this change without industry input. Some servicers also told us they 

are used to seeing industry standards that hold them accountable for 

borrower delinquency at a later point—for example, missing a payment at 

15 or 30 days. In addition, under the FFEL program, a servicer was 

required to send a written notice or collection letter to a borrower by the 

15th day of delinquency.40 Based on their own analyses, two servicers 

told us that changing the delinquency metric and compensation amounts 

incentivized them to put more resources toward a large group of 

borrowers who may simply be chronically late payers but are not at 

serious risk of default, and away from truly distressed borrowers, thus 

impacting the quality of customer service that the most at risk borrowers 

 39Prior to October 1, 2014, TIVAS had different performance metrics and compensation 

than NFPs because Education provided the two types of servicers with different loan 

portfolios. While the TIVAS serviced the full range of loans – those for borrowers in 

school, in a grace period, and in repayment – the NFPs were only assigned loans for 

borrowers already in repayment. Beginning October 1, 2014, TIVAS and NFPs started to 

operate under common pricing and performance metrics, and NFPs started to receive 

newly originated loans that were for borrowers in school and in grace periods.

40Under the Federal Family Education Loan (FFEL) Program, loans were provided by 

nonfederal lenders and repayment guaranteed by the federal government. For many 

years, essentially the same set of loans available under the Direct Loan program were 

also available through the Federal Family Education Loan (FFEL) program. In March 

2010, the SAFRA Act, enacted as part of the Health Care and Education Reconciliation 

Act of 2010, terminated the authority to make or insure new FFEL loans after June 30, 

2010. Instead, borrowers who would have been eligible to receive FFEL loans could 

receive loans made by Education under the Direct Loan program.
Page 26 GAO-16-523 Federal Student Loans

receive. Further, an interagency task force41 reported that some student 

loan stakeholders suggested the current metrics and compensation 

motivate servicing contractors to spend unnecessary resources on 

borrowers 1 to 5 days delinquent who would otherwise “self-cure”42 (e.g., 

the delinquency may be due to the borrower’s income regularly becoming 

available after their loan payment date).

Education also does not include any performance metrics to measure 

servicers’ program compliance, though program integrity is a particular 

goal of the agency. By not including metrics that address its goal of 

program integrity, Education is not fully aligning its performance 

measures with its goals, one of the key attributes of successful 

performance measures.43 Education has a range of oversight activities to 

help ensure program integrity, including Education’s annual compliance 

reviews. These compliance reviews have found repeated servicer issues 

related to how loan payments are processed, improper tracking of and 

use of deferments, and improper loan discharges and default processing. 

Such compliance issues had no effect on the amount of Direct Loan 

accounts servicers were awarded the next year. For example, fiscal year 

2011 compliance reports found that servicers had not given borrowers a 

full grace period before they were required to start making payments.44

Education officials said that there were 31,113 loans in total that were not 

given their full grace period, and that the potential impact of this was that 

 41The task force consisted of Education, the Department of the Treasury, Office of 

Management and Budget, and the Domestic Policy Council. To develop its 

recommendations, the task force also consulted with the Consumer Financial Protection 

Bureau, and experts on performance-based contracting, student lending, and servicing 

other forms of consumer debt.

42“Self-cure” refers to a delinquent borrower being able to solve the issues that led to 

delinquency in the first place, and make loan repayments without any assistance from the 

lender. 

43In our prior work, we noted nine key attributes for successful performance measures, 

including the one cited here. For more information, see GAO, Tax Administration: IRS 

Needs to Further Refine Its Tax Filing Season Performance Measures, GAO-03-143 

(Washington, D.C.: Nov. 22, 2002). 

44Education officials told us that while servicers understood how to calculate the grace 

period, they did not execute it properly due to the use of incorrect data fields. Education 

officials said that they could not locate people or documentation that would speak to 

whether Education directed the servicers to use the incorrect data fields, or whether the 

servicers selected these data fields themselves.
Page 27 GAO-16-523 Federal Student Loans

servicers began sending bills to borrowers for their loans before their full 

6-month grace period had expired. In addition, in fiscal years 2013 

through 2015, compliance reports found that six servicers did not 

appropriately track deferments, or granted deferments to ineligible 

borrowers in at least one year. In one compliance review, a servicer failed 

to rescind deferments that were granted to ineligible borrowers.

45 The 

government pays interest for subsidized loans in deferment. As a result, 

the government would incur additional costs unnecessarily when 

deferments are granted erroneously. In addition, borrowers with other 

types of loans in deferment must pay for the additional interest on their 

loans. Education officials said that they only found deficiencies in 3.7% of 

the servicer activities identified in their compliance reviews. However, 

Education did not provide us with information on how many borrowers 

were impacted by these deficiencies.

Further, the interagency task force recommended that Education 

incorporate assessments of compliance, such as measures of their audit 

and compliance review scores, into Direct Loan servicer performance 

metrics. While Education officials told us they have a process to resolve 

Direct Loan audit findings and servicers are required to take corrective 

measures to address them, this process is separate from Education’s 

 45In the compliance reports we reviewed, three servicers granted deferments to ineligible 

borrowers, but just one was cited for failing to adequately correct them. Education officials 

said that a prior servicer, who is no longer servicing these loans, was responsible for 

granting deferments to ineligible borrowers, and the current servicers inherited these 

errors when the loans were transferred to them. Education decided to accept the risk of 

not correcting the errors created by the prior servicer back to the point at which the error 

was created. Education officials said that this benefited some borrowers, who received 

more deferment than they were entitled to receive. However, Education said that current 

servicers corrected the errors retroactively, taking back the deferments to the point at 

which the loans were transferred to them. To address this, Education said that servicers 

could use an administrative forbearance to cover the period of deferment that was granted 

to a borrower who was not eligible for it. However, Education did not provide us with 

information on the extent servicers granted administrative forbearance to borrowers. 

These multiple changes to the borrowers’ loans could cause much confusion for the 

borrowers.
Page 28 GAO-16-523 Federal Student Loans

performance metrics and compensation structure.46 Compliance issues 

such as those found through the compliance reviews and other oversight 

mechanisms are not part of Education’s metrics for evaluating servicer 

performance and assigning new loans, which are heavily based on

whether borrowers are current on their payments.47 As a result, servicers 

with more compliance errors do not receive fewer loans, and their 

borrowers may continue to experience servicing errors. Despite the fact 

that Education was part of an interagency task force that recommended 

Education incorporate assessments of compliance into servicer 

performance metrics, Education officials told us they believe that broad 

results directly tied to overall portfolio performance are the most 

appropriate driver for assigning new loans to servicers. Education officials 

also told us that the customer satisfaction survey of FSA managers, one 

of the servicer performance metrics, reflects the views of oversight and 

compliance managers, and the survey scores in part reflect the servicers’ 

success in limiting and addressing compliance issues. However, the 

survey of FSA managers does not measure compliance directly, nor does 

it focus on managers’ views on compliance.

48

 46Education officials told us that they have processes to remediate deficiencies through 

audits and reviews, with any persistent issues escalated up to the point of cure notices

(notifications that specify a period - typically 10 days - for the servicer to remedy the 

condition, and if not corrected within this period, the cure notice states that the contractor 

may face termination of its contract), withholding payments, and warnings to transfer 

borrowers away from servicers. However, Education did not provide us with evidence that 

they have ever actually transferred borrowers away from servicers.

47Three of the five current metrics used to determine new loan allocation for servicers are 

related to repayment, including delinquent payments, and are worth a combined total 60 

percent of each servicer’s overall score.

48The FSA manager survey questions focus on FSA managers’ satisfaction with working 

with the servicers’ data systems, work products, information and communication, 

interactions, working relationship, and general overall experiences with the servicers. The 

survey also included open-ended questions about reasons for dissatisfaction with servicer 

performance, and suggestions for what servicers could do to improve their processes or 

practices for servicing federal loans. Servicers we interviewed expressed concern with the 

low participation in the FSA manager survey. For example, a survey conducted from July 

to September 2014 had a response rate of 54 percent, and a survey from April to June 

2015 had a response rate of 58 percent. As the reports for these survey results noted, the 

number of respondents were too small to statistically assess the impact of the results on 

customer satisfaction.
Page 29 GAO-16-523 Federal Student Loans

Education officials told us they may consider alternative performance 

metrics and related compensation when they recompete servicer 

contracts in 2016, but they have not yet done so. Officials said the agency 

did not document the criteria it used to develop and select the current 

performance metrics and compensation structure. Education has recently 

undertaken a study on the effects of the new pricing and performance 

metrics on borrowers.49 Nevertheless, Education has not conducted datadriven analysis to evaluate whether the existing performance metrics and 

compensation structure help the agency meet strategic goals. Unless 

Education takes steps to evaluate and better align its servicer 

performance metrics and related compensation with strategic goals,50

borrowers will continue to be at risk of experiencing errors and poor 

customer service.

Key weaknesses in Education’s customer service for borrowers and 

management of the Direct Loan program leave the agency unable to 

ensure that student loan borrowers are well-served. Accessibility of 

information is a major component of good customer service and is crucial 

to helping borrowers manage their loans and repay their debt, and phone 

communication is a key way servicers provide information to borrowers. 

However, without a minimum standard for servicer call center hours, 

some borrowers will continue to have difficulty contacting their assigned 

servicers, putting them at greater risk of delinquency or default. In 

addition, Education’s oversight could be improved to better meet the 

agency’s goals of ensuring program integrity and superior customer 

service. Without an integrated borrower complaint tracking system—

identified by Education as a key mechanism to enhance both oversight 

and customer service—Education lacks comprehensive and comparable 

information on the nature of borrower complaints made to both Education 

and its contracted loan servicers, hindering its ability to track trends and 

address borrower concerns. Furthermore, without linking its evaluation of 

 49Education first told us about their work on this study in October 2015, and shared 

preliminary results with us in April 2016. While the study is ongoing and GAO did not have 

enough information about the study design and analysis to assess the interim results, 

Education noted that initial data seem to indicate better outcomes for borrowers, such as 

lower default rates and higher levels of repayment, as compared to borrower outcomes 

under the old system of pricing and metrics.

50See GAO/GGD-10.1.20 and GAO-03-143.

Conclusions
Page 30 GAO-16-523 Federal Student Loans

servicer performance metrics and compensation to the agency’s program 

integrity and customer service goals, and without taking steps to better 

align them with those goals, Education’s incentives for servicers will 

continue to have unintended and adverse effects on the customer service 

borrowers receive, and poor compliance will not affect Education’s 

assessment of servicer performance or reduce the number of new loans 

assigned to servicers with more compliance issues.

To help address Education’s strategic goal of providing superior customer 

service to borrowers, and to strengthen oversight of the Direct Loan 

program, we recommend the Secretary of Education take the following 

three actions:

1. Develop a minimum standard that specifies core call center operating 

hours to provide borrowers, including those on the West Coast, with 

improved access to servicers.

2. Ensure the new unified borrower complaint tracking system includes 

comprehensive and comparable information on the nature and status 

of borrower complaints made to both Education and servicers, to 

allow Education to track trends and better manage the program to 

effectively meet borrower needs.

3. Evaluate and make needed adjustments to Direct Loan servicer 

performance metrics and compensation to improve assessment, 

including using baseline data, and alignment with Federal Student 

Aid’s strategic goals aimed at superior customer service and program 

integrity, and to ensure that the assignment of new loans to servicers 

takes program compliance into account.

We provided a draft of the report to the Department of Education for 

review and comment. In written comments, Education generally agreed 

with our findings and recommendations, stating that it is committed to 

providing federal student loan borrowers with complete, consistent, and 

easily accessible information to help them manage their debt and avoid 

delinquency and default. 

In response to our recommendation on servicer call center hours, 

Education agreed to establish core hours in the requirements for 

servicers to help borrowers access live customer service representatives. 

Education also noted that borrowers can use interactive voice response 

and web technology to access information from their servicers during 

periods when live operators are not available. While these are additional 

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
Page 31 GAO-16-523 Federal Student Loans

tools for borrowers, they do not replace the need for access to live 

representatives, and, as we note in the report, Education’s customer 

satisfaction surveys of borrowers in 2014 and 2015 raised concerns about 

the usefulness of servicers’ automated voice response systems. 

Establishing core call center hours in servicer requirements, if 

implemented as Education described, would meet the intent of the 

recommendation.

In response to our recommendation that Education’s complaint system 

should include comprehensive and comparable information on complaints 

made to both Education and servicers, Education expressed some 

potential challenges to including comprehensive information on 

complaints to servicers under the current servicing structure. However, it 

noted that its recent solicitation to procure a new loan servicing system 

will create a single web portal through which all borrowers can manage 

their accounts. Education stated that, when implemented, this new 

servicing environment, in conjunction with the department’s new 

complaint system, will collect complaint information comprehensively, as 

we recommend. 

In response to our recommendation that Education evaluate and make 

needed adjustments to Direct Loan servicer performance metrics and 

compensation to improve assessment and alignment with customer 

service and program integrity goals, Education agreed to evaluate 

existing and alternative performance metrics and compensation strategies 

as part of its ongoing student loan servicing procurement and reflect the 

results in future servicing contracts. As we mention in the report, 

Education has also recently undertaken a study on the effects of 

compensation and performance metrics on borrowers, and the agency 

stated it will continue this analysis. However, Education stated that our 

discussion related to compensation and performance metrics did not 

adequately acknowledge that these factors are only two elements in a 

broader contract management structure designed to support Education’s 

strategic goal of providing “superior service,” and cited such elements as 

monitoring, reporting, and ongoing servicer engagement as playing a key 

role in driving servicer performance. We acknowledged these efforts in 

our report and incorporated additional details about them based on 

Education’s comments and additional supporting documentation. 

Although these additional elements may affect servicer performance, they 

do not change the allocation of new loans and the remuneration servicers 

receive. Therefore, we maintain that the performance metrics and 

compensation are primary drivers of servicer performance, which directly 

affects the borrower experience. Education also disagreed with our 
Page 32 GAO-16-523 Federal Student Loans

description that program compliance is not reflected in the current 

performance metrics, stating that the customer satisfaction survey of FSA 

managers in part reflects managers’ views on the servicers’ success in 

limiting and addressing compliance issues. While the FSA survey is one 

of the servicer performance metrics, it is not a direct measure of servicer 

compliance, nor does it specifically solicit the views of FSA managers 

about servicer compliance, focusing instead on elements such as 

communication with servicers, interacting with servicer data systems, and 

quality of working relationships. Moreover, as we note in the report, an 

interagency task force that included Education recommended that 

Education incorporate direct assessments of compliance, such as 

measures of audit and compliance review scores, into Direct Loan 

servicer performance metrics. For all these reasons, we continue to 

believe that Education should incorporate direct measures of compliance 

in its performance metrics. 

Education also provided technical comments, which we incorporated as 

appropriate. Education’s comments are reproduced in appendix I.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to interested congressional 

committees and to the Department of Education. In addition, the report 

will be available at no charge on the GAO website at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact 

me at (617) 788-0534 or emreyarrasm@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this 

report are listed in appendix II.

Melissa Emrey-Arras, Director

Education, Workforce, and Income Security Issues
Appendix I: Comments from the Department of 

Education

Page 33 GAO-16-523 Federal Student Loans

Appendix I: Comments from the Department 

of Education
Appendix I: Comments from the Department of 

Education

Page 34 GAO-16-523 Federal Student Loans
Appendix I: Comments from the Department of 

Education

Page 35 GAO-16-523 Federal Student Loans
Appendix II: GAO Contact and Staff 

Acknowledgments

Page 36 GAO-16-523 Federal Student Loans

Melissa Emrey-Arras, (617) 788-0534 or emreyarrasm@gao.gov

In addition to the contact named above, Kris Nguyen (Assistant Director), 

Rebecca Woiwode (Analyst-in-Charge), Hedieh Fusfield, Kristy Kennedy, 

Timothy Shaw, and Mark Ward made key contributions to this report. 

Additional assistance was provided by Amy Anderson, Susan Aschoff, 

James Bennett, Deborah Bland, Jessica Botsford, Jason Bromberg, 

Alexandra Dew Silva, Joel Green, Kurt Gurka, Benjamin T. Licht, Robin 

Marion, Jenn McDonald, Sheila McCoy, Jean McSween, Jeff Miller, Amy 

Moran Lowe, Ellen Phelps Ranen, Ken Rupar, Karissa Schafer, Paige 

Smith, Sonya Vartivarian, and William T. Woods.

Appendix II: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments
Related GAO Products

Page 37 GAO-16-523 Federal Student Loans

Federal Student Loans: Key Weaknesses Limit Education’s Management 

of Contractors.GAO-16-196T. Washington, D.C.: Nov. 18, 2015.

Federal Student Loans: Education Could Do More to Help Ensure 

Borrowers Are Aware of Repayment and Forgiveness Options. 

GAO-15-663. Washington, D.C.: August 25, 2015.

Higher Education: Better Management of Federal Grant and Loan 

Forgiveness Programs for Teachers Needed to Improve Participant 

Outcomes. GAO-15-314. Washington, D.C.: February 24, 2015.

Managing For Results: Selected Agencies Need to Take Additional 

Efforts to Improve Customer Service. GAO-15-84. Washington, D.C.: Oct. 

24, 2014.

Older Americans: Inability to Repay Student Loans May Affect Financial 

Security of a Small Percentage of Retirees. GAO-14-866T. Washington, 

D.C.: Sept. 10, 2014.

Federal Student Loans: Better Oversight Could Improve Defaulted Loan 

Rehabilitation. GAO-14-256. Washington, D.C.: March 6, 2014.

Related GAO Products

(131269)
Related GAO Products

Page 38 GAO-16-523 Federal Student Loans

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