- The Education Department awarded five student-loan companies new contracts to overhaul debt repayment.
- The department said the contracts will deliver "major improvements" for student-loan borrowers.
President Joe Biden's Education Department just took another step in overhauling the student-loan repayment system for millions of borrowers.
On Monday, the department announced that it awarded five student-loan companies — Central Research, Inc., EdFinancial Services, Maximus Education, MOHELA, and Nelnet — new contracts to improve loan servicing for over 37 million borrowers with federal loans. Central is the only new company that signed a contract with the department.
These new contracts are part of the department's previously announced plan to create a new loan servicing system that would implement "much-needed improvements to better serve borrowers," according to the press release, and the changes will start being implemented next year. Specifically, according to the department, the new contracts will facilitate reforms to targeted relief programs like Public Service Loan Forgiveness and the new income-driven repayment plan, along with helping borrowers avoid falling into default.
"The Biden-Harris Administration is fixing broken programs like Public Service Loan Forgiveness and writing the most affordable repayment plan ever, and the Department of Education is working tirelessly to implement these policies and maximize benefits for borrowers," Under Secretary of Education James Kvaal said in a statement.
According to the department, the contracts will make "major improvements" to loan servicing when they go into effect in 2024, including an improved customer service experience for borrowers and enhanced consumer protection rules. And as these new contracts are implemented, the department is extended the current servicer contracts through December 2024 to allow for a smooth transition for borrowers.
Still, as the department noted, implementing these changes successfully is dependent on increased funding from Congress. Biden's budget requested $2.7 billion for Federal Student Aid — a $620 million increase over the 2023 spending level — to carry out the reforms the department has announced.
"This additional funding is essential to support students and student loan borrowers," the press release said. "The increase would allow FSA to continue to operate the student aid programs, implement critical improvements to student loan servicing, continue to modernize its digital infrastructure, and ensure successful administration of the financial aid programs through a simplified and streamlined application process for students and borrowers."
As Insider has previously reported, many borrowers have experienced a range of problems dealing with the company that manages their debt, from hours-long hold times on the phone to inaccuracies with their payment counts.
But the Republican-controlled House is unlikely to approve more funding to facilitate student-loan programs. Speaker of the House Kevin McCarthy, for example, proposed cutting spending for the Education Department to prohibit it from implementing student-loan forgiveness and creating a new income-driven repayment plan in his debt ceiling bill.
This means that the department faces a rough road ahead because, along with overhauling student-loan repayment, it's planning to resume payment for millions of borrowers this year and carry out student-debt relief if the Supreme Court rules that it's legal. If FSA does not receive increased funding, carrying out those programs seamlessly could be complicated.