The Education Dept. announced it extended contracts for six student-loan companies through 2023.
The companies agreed to higher standards to protect borrowers and ensure a smooth transition to repayment in 2022.
FSA head Richard Cordray previously said student-loan companies were shutting down due to fear of accountability.
After President Joe Biden announced in August the "final" extension of the student-loan payment freeze during the pandemic, three student-loan companies announced plans to shut down their federal services, raising alarms for borrowers and advocates who fear an administrative mess with restarting payments next year.
But the Education Department made clear on Friday that the six student-loan companies continuing their contracts agreed to higher standards, both during the transition to repayment and for the duration of their contracts.
The department announced in a press release that it extended contracts for six student-loan companies, and within those contracts are stronger standards for performance, transparency, and accountability that will protect borrowers that will be "critical" in ensuring a smooth transition into repayment. Specifically, the new terms give the Federal Student Aid (FSA) office greater ability to monitor issues with servicers as they arise and requires the companies to comply with state, local, and federal law related to loan servicing.
"FSA is raising the bar for the level of service student loan borrowers will receive," FSA head Richard Cordray said in a statement. "Our actions come at a critical time as we help borrowers prepare for loan payments to resume early next year. The great work done by our negotiating team here enables us to ensure that loan servicers meet the tougher standards or face consequences."
The press release noted that the six companies - Great Lakes, HESC/Edfinancial, MOHELA, Navient, Nelnet, and OSLA Servicing - agreed to contract extensions through December 2023. Notably, while Navient signed a contract extension in September, it later became the third company last month to request a shut down of its federal loan services, which the department is currently reviewing.
FSA will measure the companies each quarter on their abilities to meet goals related to:
The percentage of borrowers who end a call before reaching a customer service representative;
How well customer service representatives answer borrowers' questions and navigate repayment options;
Whether servicers process borrowers' request accurately the first time;
And the overall level of customer service provided to borrowers.
Cordray said during remarks at a conference earlier this month that student-loan companies are choosing to shut down rather than face more accountability. To be sure, he did not comment on specific companies but noted that "not everybody was thrilled" with his plans to strengthen oversight of the industry.
This is the Biden administration's latest effort cracking down on student-loan abuses. Last week, FSA announced it is reviving an enforcement office to "vigorously investigate" schools' student-loan and federal aid abuses, and it comes on the tail of Rohit Chopra's confirmation to lead the Consumer Financial Protection Bureau (CFPB), who emphasized his plans to protect student-loan borrowers.
As Insider has previously reported, borrowers have experienced immense difficulty receiving help from their student-loan companies, preventing them from paying off their student debt. Charles Moore, 49, previously told Insider he had a simple question about consolidating his loan with his wife's, and he ended up being on the phone for four hours trying to get an answer.
"Nobody wants to assist you," Moore, said. "And you don't know how to get help. Even though you go back and forth, the lender doesn't know what the servicer is doing and the servicer doesn't know what the lender is doing."
Read the original article on Business Insider