Under the Direct Loan program, FSA issues several types of loans to students and their parents, including Subsidized, Unsubsidized, and PLUS Loans. The federal government sets limits on the interest rate, loan origination fees and other charges, and annual and aggregate amounts that can be borrowed. There are several repayment plans available to borrowers, including a range of income-driven repayment plans. In addition to being in repayment status, loans may be in: (1) deferment: a period during which repayment of a loan is temporarily suspended—such as while a student with undergraduate loans pursues additional higher education, or in (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, 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 service providers. In 2003, FSA entered into a 5-year, performance-based contract known as Common Services for Borrowers to improve the management of student loans following disbursement. The contractor was the sole loan servicer for the Direct Loan program and was also expected to modernize and integrate four separate information systems, including for loan servicing and debt collection. However, the contractor experienced significant software development delays and FSA canceled the systems integration effort in May 2007. FSA then began exploring options for upgrading the defaulted loan information system in 2009, and invited six firms, including the original system contractor, to submit proposals. The original contractor subsequently offered to upgrade the system at no additional cost to the government. In June 2010, FSA canceled the request for proposals and modified the original contract to include the upgrade. Beginning in 2009, FSA entered into performance-based contracts with additional loan servicers. These contracts were awarded as part of FSA’s strategy to improve servicing performance by fostering competition among vendors. Currently, FSA has contracts with four Title IV Additional Servicers (TIVAS) and six not-for-profit (NFP) servicers. Loan servicing includes such activities as communicating with borrowers about the status of their loans, counseling borrowers on selecting repayment plans, and processing payments. In administering the Direct Loan program, FSA uses numerous tools and activities to oversee the performance of its contractors, including loan servicers and others that provide services in support of student loan administration. FSA issues instructions and guidance to servicers to manage the program that range from guidance on day-to-day operations to contractual changes servicers must implement. In addition to providing written communications, FSA meets with servicers to discuss program operations and policy. FSA also conducts various monitoring activities, including monitoring selected calls between servicers and Direct Loan borrowers to ensure both acceptable customer service and servicer compliance with statutory, regulatory, and contractual requirements. Some FSA guidance and instructions to servicers is inadequate, resulting in inconsistent and inefficient services to borrowers. While FSA has taken some steps to provide more Direct Loan program guidance and instructions to servicers, six out of the seven servicers we interviewed reported various issues resulting from absent, unclear, and inconsistent guidance and instructions from FSA. As a result, borrowers are likely to have different experiences with the Direct Loan program. FSA has made some effort to respond to servicers’ concerns about its program instructions. For example, in a white paper to FSA, three servicers suggested ways FSA could improve how it provides instructions on program changes. In response to these suggestions, FSA officials told us that they are planning to implement training on the current process for providing instructions in November 2015, and that they now discuss each new instruction with servicers, including any instruction that needs clarification. In addition, FSA officials said they recently put a number of processes in place to assist servicers with implementing a new income driven repayment plan, including job aid documentation to help servicers with their development of training and systems. Nevertheless, we identified a number of inconsistencies caused by a lack of guidance and instructions, such as the following: One servicer we interviewed reported that there is a lack of instructions from FSA for some aspects of the Direct Loan program, such as how to apply borrower over- or underpayments to a borrower’s balance. This servicer stated that it is clear how they should generally apply borrower payments to student loan balances; however, if borrowers do not provide specific instructions on how to apply a payment that is over or under the monthly payment amount, servicers then have to decide how to apply this to the borrowers’ balances. For example, according to this servicer, if a borrower has multiple loans, some servicers spread an overpayment amount evenly across all loans, but other servicers target the higher interest loans first. This servicer also said that FSA has not communicated with them on how to standardize application of such payments. FSA officials stated that they are in the process of working with the Consumer Financial Protection Bureau on establishing a consistent approach for the application of over-and underpayments, but they do not know when this will be finalized. They added that any related requirements for servicers would likely be included when they recompete servicer contracts in early 2016. A servicer reported that FSA does not provide sufficient guidance on all documentation that is allowable for income-driven repayment plans, and as a result, each servicer is left to interpret what some of their borrowers submit for proof of income. For example, some servicers treat retirement benefits as income, while others do not. This could potentially cause similarly situated borrowers in the same income-driven repayment plan to have different monthly payment amounts or prevent some from qualifying, depending on who services the loan. FSA officials acknowledged that due to difficulties in deciphering alternative income documentation, servicers could interpret income differently. They also stated that it is difficult to craft guidance that would address the range of these issues. In addition, officials told us that they have finalized a new income-driven application protocol that further outlines processing rules and guidelines. However, this protocol does not provide additional guidance on how servicers should interpret income documentation. Three of the servicers we interviewed said FSA has not provided clarification on industry guidance for credit reporting that FSA has directed them to follow. For example, because the industry guidance does not account for specific aspects of the Direct Loan program, it is unclear how servicers should handle credit reporting for unique, program-specific borrower statuses, such as borrowers who had poor credit reports filed right before they were approved to postpone or reduce their payments. As a result, some servicers removed bad credit reports for some borrower statuses while others did not. FSA officials said they were aware of issues with inconsistent credit reporting, and were coordinating with other federal agencies on a review to better understand the impact of student lending on a consumer’s credit score, and that it will be the basis for issuing guidance to create consistency in credit reporting. However, FSA officials could not tell us when this review will be completed. They said that when the review is finished, they expect to implement the new guidance next year. FSA is not consistently sharing all clarifications on Direct Loan program instructions with all servicers. Servicers told us that when they ask follow up questions about instructions from FSA, FSA does not routinely share its responses with all servicers, resulting in different servicers potentially receiving different information about the same instructions. For example, one servicer we interviewed expressed concern with the lack of clarity in FSA instructions to address differences across servicers on how interest is applied to loans. According to FSA officials and one servicer that we spoke with, FSA has taken some action to address this lack of consistent instructions, including implementing a new directive to standardize the treatment of interest, developing test scenarios for servicers to use to ensure requirements are consistently implemented, and forming a work group of servicers and FSA staff on this issue. However, this same servicer also pointed out that despite these efforts, additional FSA guidance is in process and still outstanding, and FSA continues not to share questions and answers or clarifications on this issue. FSA officials stated that due to the complexity of the program not all guidance was applicable to all servicers, however they plan to move toward a more consistent process when they recompete servicer contracts in early 2016. Servicers expressed the need to further standardize certain aspects of the Direct Loan program and offered several suggestions for improving program servicing consistency through better guidance and instructions. For example, five out of the seven servicers we interviewed stated that overall, they would like FSA to provide more information and clarity on FSA’s instructions. Four servicers also expressed the need for a common manual for Direct Loan servicers, similar to the one that exists for the Federal Family Education Loan (FFEL) Program—a program under which loans were provided by nonfederal lenders and repayment guaranteed by the federal government that would describe and help clarify current student loan requirements. While FSA and servicers share information about the Direct Loan program with borrowers in multiple ways – including online and by email and mail – there is no single manual like this that servicers and borrowers have access to. One higher education association representing financial aid professionals said such a manual should be made widely circulated so borrowers can confirm information on the Direct Loan program themselves. FSA officials told us that when they begin the process of re-competing the contracts for Direct Loan servicing next year, they will evaluate the need for a common manual.