Three Senate Democrats levied concerns about the Department of Education's new centralized platform for servicing federal student loans in a letter on Monday to Education Secretary Miguel Cardona .
Sens. Elizabeth Warren (D-MA), Ron Wyden (D-OR), and Chris Van Hollen (D-MD) sent the letter questioning the transparency of the Unified Servicing and Data Solution system, which is still under development to service all Federal Student Aid loans.
“While we applaud the Biden Administration’s efforts to modernize and improve student loan servicing, a preliminary review of publicly available information on this transition suggests that this new system lacks transparency,” the senators wrote, according to the Hill. “As a result, it will be difficult for borrowers and the federal government to hold servicers and contractors accountable, including the Business Process Operations (BPO) vendors that support account servicers.”
The trio of Democrats pointed to a practice called "white labeling," in which companies contracted by the government to perform loan services are able to sidestep accountability because they perform services under a "single FSA brand," meaning the responsibility for low-quality services is deflected to the agency itself as opposed to the contracted company.
The senators noted that reporting poor servicing to the Consumer Financial Protection Bureau, which is responsible for ensuring contractor accountability, could be made more difficult.
“Co-branding or single-branding loan servicers with FSA and allowing BPO vendors to operate in silence without being identified as individual companies threatens to create confusion for borrowers and could lead to a lack of oversight and accountability for servicers’ errors,” the Democrats wrote. “FSA must incorporate strong transparency features that enable borrowers to identify the servicer responsible for their loan and hold that entity accountable.”
The Department of Education says the need for a centralized servicing system arose because there were six loan servicers, all of which have proprietary platforms, which the agency says stirs confusion. The department also says that while some information exists on the servicer websites, "rights, responsibilities, and eligibility for various repayment benefits" are available on the government site, studentaid.gov.
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While the six servicers' contracts expired in December, new contracts were set to be awarded through the USDS system.
"We have received the letter and will respond directly to the signers," a Department of Education spokesperson told the Washington Examiner.
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