Contract requirements for Federal student loan servicers

(a)

In general

Part G of title IV of the Higher Education Act of 1965 (20 U.S.C. 1088 et seq.) is amended by adding at the end the following:

494A.

Contract requirements for Federal student loan servicers

(a)

Enhanced vetting

Before entering into a contract or other agreement with a Federal student loan servicer for the servicing of Federal student loans, the Secretary shall evaluate the following factors:(1)In the case of a servicer that has previously serviced Federal student loans, the past performance of the servicer compared to all Federal student loan servicers, including—(A)the levels of consumer satisfaction reported with respect to such servicer; and (B)the quality of customer service practices and the demonstrated ability of the servicer to prevent errors and disruptions in services in the event a Federal student loan is transferred to or from the servicer, as measured by—(i)the service level methodology performance metrics and servicer allocation metrics issued by the Office of Federal Student Aid of the Department (or any successor metrics); and(ii)any other quantitative or qualitative factors the Secretary determines appropriate for analysis.(2)In the case of a servicer that has not previously serviced Federal student loans, the past performance of the servicer compared to other similarly situated servicers, including—(A)the levels of consumer satisfaction reported with respect to such servicer; and (B)the quality of customer service practices and the demonstrated ability of the servicer to prevent errors and disruptions in services in the event a student loan is transferred to or from the servicer, as measured by any quantitative or qualitative factors the Secretary determines appropriate for analysis.(3)Any penalties or other punitive measures previously imposed on the servicer by the Department as a result of the servicer’s misconduct, failure to adequately support borrowers, or inability to meet the terms and conditions of a servicing agreement with the Department.(4)Any legal action previously taken against the servicer, including any legal action taken by a State.(5)The ability of the servicer to capture necessary data regarding borrowers and the eligible Federal student loans held by borrowers in the event such loans are transferred to the servicer, including the ability of the servicer to gather all information related to the repayment history of a borrower and relevant consumer demographic data prior to servicing such loans.(6)The ability of the servicer to provide targeted services, including personalized counseling and other high-quality services, for borrowers most at risk of default and delinquency, including borrowers who have previously defaulted.(7)The demonstrated ability of the servicer—(A)to support borrowers from traditionally underrepresented communities by providing information through the forms described in subsection (f) and through automatic website translation, and services in multiple languages (including Spanish, Mandarin, Haitian Creole, Arabic, and other languages); and(B)to provide appropriate access and support for borrowers with disabilities.(b)

Required contract terms

As part of any contract or other agreement between the Department and a Federal student loan servicer, the servicer shall agree to the following terms:(1)The servicer shall place a borrower’s loans into an administrative forbearance, during which interest shall not accrue, during any period in which the servicer has identified a servicer error but has not yet corrected the error.(2)For a borrower who has submitted a certification of the borrower’s employment status or income for purposes of the public service loan forgiveness program under section 455(m) or an income-driven repayment plan, respectively, the servicer shall provide credit toward loan forgiveness under that program or plan for—(A)any period during which the borrower—(i)was in administrative forbearance due to a servicer error as described in paragraph (1); and(ii)would have otherwise qualified for credit toward forgiveness if not for such forbearance; or(B)any other period during which the borrower would have qualified for credit toward forgiveness if not for a servicer error.(3)The servicer shall provide appropriate remedies to a borrower in the event a servicer error results in financial harm to the borrower (as determined by the Secretary), including—(A)refunding overpayments on a loan made due to a servicer error;(B)reimbursing a borrower for fees and other expenses, such as insufficient funds fees, incurred by the borrower as a result of a servicer error; and(C)such other remedies as the Secretary determines appropriate.(4) The servicer shall ensure that credit reporting agencies remove delinquencies or other negative information from the credit reports of a borrower if the negative credit information was a result of an error by the servicer.(5)The servicer shall maintain all records concerning the account of a borrower—(A)for the period during which the servicer services any loan of the borrower; and(B)for a period of not less than 3 years after—(i)the loans of a borrower have been paid in full, discharged, or assigned to collection;(ii)the account has been transferred to another servicer; or(iii)the servicer otherwise ceases the servicing of such loans.(6)The servicer shall abide by any decision of the Secretary to revoke the contract in accordance with subsection (e).(c)

Applicability

(1)

Contracts covered

Subsections (a) and (b) shall apply with respect to contracts and other agreements entered into on or after the date that is 90 days after the date of enactment of the Student Loan Servicers Accountability Act of 2024.(2)

Special rule

The requirements of paragraphs (1) through (5) of subsection (b) shall apply to the actions of the Department in directly administering the public service loan forgiveness program under section 455(m), income-driven repayment plans, and other forgiveness and repayment programs authorized under this Act in the same manner as such requirements apply to Federal student loan servicers.(d)

Review of legacy contracts

Not later than 180 days after the date of enactment of the Student Loan Servicers Accountability Act of 2024, the Secretary shall conduct a review of all legacy student loan servicing contracts to determine whether such contracts, and the Federal student loan servicers providing services under such contracts, align with the requirements set forth in subsections (a) and (b). The Secretary shall use the results of such review to inform any decision of the Secretary to continue or renew such a contract.(e)

Revocation

(1)

In general

Subject to paragraph (2), the Secretary may revoke a contract or other agreement between the Department and a covered servicer or vendor if the Secretary determines that the covered servicer or vendor knowingly withheld information or made misrepresentations to the Department in connection with the vetting process described in subsection (a) or any element of a contract entered into under subsection (b).(2)

Notice

In the event the Secretary determines that a covered servicer or vendor described in paragraph (1) withheld information or made misrepresentations as described in such paragraph, the Secretary shall provide the covered servicer or vendor (as the case may be) with reasonable notice of such determination and an opportunity for a hearing before making taking final action to revoke the contract or other agreement concerned.(f)

Information in multiple languages

The Secretary and the Director of the Office of Management and Budget shall ensure that forms and other information relating the rights of borrowers under this section are made available in multiple languages (including Spanish, Mandarin, Haitian Creole, Arabic, and other languages) and are accessible to borrowers with disabilities.(g)

Report to Congress

Not later than 1 year after the date of enactment of the Student Loan Servicers Accountability Act of 2024, and on an annual basis thereafter, the Secretary shall submit to Congress a report that evaluates the status of compliance with this section, including the compliance of—(1)the Department; and(2)covered servicers and vendors. (h)

Definitions

In this section:(1)

Covered servicer or vendor

The term covered servicer or vendor includes—(A)a Federal student loan servicer;(B)a vendor in the Unified Servicing and Data Solution system; (C)a business process operation vendor; and(D)a vendor or servicer as designated by the Secretary. (2)

Federal student loan

The term Federal student loan means a loan made under part B, D, or E that is held by the Department.(3)

Federal student loan servicer

The term Federal student loan servicer means any individual, State, or private, for-profit or nonprofit organization, which enters into, or seeks to enter into, a contract with the Secretary to administer, through either manual or automated processing, any aspect of a Federal student loan program, including monitoring, processing, servicing, or collecting loans.(4)

Legacy student loan servicing contract

The term legacy student loan servicing contract means a contract between the Department and a Federal student loan servicer that—(A)was entered into before the date that is 90 days after the date of enactment of the Student Loan Servicers Accountability Act of 2024; and(B)was in effect as of such date.

(b)

Conforming amendment to PSLF

Section 455(m) of the Higher Education Act of 1965 (20 U.S.C. 1087e(m)) is amended by adding at the end the following:

(5)

Treatment of certain periods of forbearance

Each month during which an eligible Federal Direct Loan is in an administrative forbearance described in section 494A(b)(1) shall be treated as a qualifying payment counted for purposes of paragraph (1)(A), regardless of whether the borrower made a payment on such loan during such period.

Comptroller General study and report

(a)

Study

The Comptroller General of the United States shall conduct a study—(1)to determine how and to what extent the transfer of Federal student loans to Federal student loan servicers leads to disruptions in repayment or servicer errors that affect the credit ratings of borrowers of such loans, which shall include evaluation of—(A)negative effects resulting from a servicer’s failure to maintain accurate, up-to-date information on the status of a borrower’s account;(B)the root causes of such failures, such as errors caused by a lack of compatibility between the information technology systems of different Federal student loans servicers; and(C)how such failures impact borrowers, such as by presenting borrowers with inaccurate account balances, inaccurate or incomplete payment histories, and miscalculated monthly payment amounts;(2)to develop, in consultation with the Director of the Bureau of Consumer Financial Protection, recommendations to assist the Department of Education in mitigating any negative effects of such transfers on the credit ratings of borrowers;(3)to determine how and to what extent servicing errors, servicer noncompliance with State or Federal requirements, or servicer failure to provide timely and accurate information to borrowers negatively impacts the credit scores of borrowers or otherwise results in harm to borrowers;(4)to assess the effectiveness of the processes used by servicers to receive and respond to consumer complaints, including—(A)servicer requirements regarding how complaints can be filed; and(B)servicer processes for tracking, investigating, resolving, and addressing the root causes of consumer complaints, including complaints submitted through the websites and feedback systems of the Department of Education; and(5)to determine how the Unified Servicing and Data Solution will effectively address errors and other issues arising from the transfer of Federal student loans to and from different servicers.(b)

Comptroller General report

Not later than two years after the date of the enactment of this Act, the Comptroller General shall submit to the appropriate congressional committees a report on the results of the study conducted under subsection (a).(c)

Definitions

In this section:(1)

Appropriate congressional committees

The term appropriate congressional committees means—(A)the Committee on Health, Education, Labor, and Pensions of the Senate; and(B)the Committee on Education and the Workforce of the House of Representatives.(2)

Federal student loan; federal student loan servicer

The terms Federal student loan and Federal student loan servicer have the meanings given those terms in section 494A of the Higher Education Act of 1965 (as added by section 2 of this Act).