New Student Loan Repayment Process May Help End Confusion

The Department of Education announced earlier this month its plan to create a single Web portal for federal student loan borrowers -- a move to make payments easier.

Once the platform is released, borrowers will be redirected to a single portal to pay their student debt. But the site isn't expected to be rolled out anytime soon, a Department of Education spokesman says.

Total outstanding debt is close to $1.3 trillion, and most of this debt is from federal student loans.

[Read aboutthree changes that will help student loan borrowers.]

"Our goal is to build a new state-of-the-art loan servicing system -- one that creates incentives and guidelines that support a more user-friendly single online loan management platform," said Under Secretary of Education Ted Mitchell in a blog post.

Under the current system, borrowers with federal loans are bounced between different service providers contracted by the Education Department.

The big four servicers are Great Lakes Educational Loan Services, Nelnet, FedLoan Servicing and Navient, a spinoff of Sallie Mae. These providers service the majority of student loan borrowers, according to the Student Loan Borrower Assistance Project, a division of the Boston-based National Consumer Law Center.

"Confusion reigns in the student loan space," says Carlo Salerno, a District of Columbia-based education economist. "There are people who get confused on who their loan provider is, and they see that they get a bill statement from Navient or Great Lakes and they don't understand that this is related to a government loan."

Borrowers currently have to log in to their servicer's website to make payments, and some student debtors may have loans with multiple servicers. The new platform's objective is to eliminate varying experiences, providing borrowers with one main point of contact.

[Check out thisguide to understanding student loan servicer changes.]

The Department of Education previously had a single direct loan servicer until 2009 when it changed to the current structure.

"There are many out there who believe that if you took out a loan from the government you should be able to go to a '.gov website' and pay your bill," Salerno says.

These servicers collect money from borrowers and remit those payments to the Department of Education, which ultimately remits those funds to the Treasury. Federal loans aren't originated from the Department of Education, economists say.

[Here are five steps to take when your student loan servicer changes.]

Last summer the Consumer Financial Protection Bureau, which oversees consumer borrowing, received more than 8,000 comments from borrowers about loan servicing providers. The Department of Education and the Treasury incorporated this feedback into their road map -- the Financial Aid Servicing Solution -- to improve services to borrowers.

In the feedback, commenters said servicing transfers resulted in surprise fees and damaged credit, to name a few problems, according to the CFPB's September 2015 report.

The Department of Education says it plans to improve customer service with uniform standards for lenders.

"It's not only the act of the transfer causing problems for borrowers but a lack of consistency across different servicing platforms," says CFPB Student Loan Ombudsman Seth Frotman.

According to the Education Department's blog, borrowers can expect department-branded communication, which will eliminate differences between servicers.

Current servicer co-brands such as Navient or Nelnet leads to confusion and this may cause communication breakdowns and sometimes defaults, according to the Student Loan Borrower Assistance Project.

With the new servicing plan, the need to know the name of a servicer will be eliminated, said Mitchell.

"They propose some good ideas and some practical solutions that would be beneficial," says Persis Yu, director of the Student Loan Borrower Assistance Project , about the department's new plan. "Accountability is one of the biggest problems that we've been having with the servicers."

Yu says one concern with the new initiative is the plan to add debt collection into the new system. Student loan borrowers currently can sue collection agencies for violations under the Fair Debt Collection Practices Act, which protects consumers from abusive debt collectors.

"Having it under one umbrella makes it simpl er, but on the other hand we know that there have been a lot of abuses by private collections agencies," says Yu, who says the department needs to be more transparent about the new process and include current consumer protections under the new plan.

The department will award a contract to a loan service provider for the new plan at the end of 2016. In the Education Department's solicitation for a loan provider, the post says that default collections may be defined after the contract is awarded.

Trying to fund your education? Get tips and more in the U.S. News Paying for College center.

Farran Powell is an education reporter at U.S. News, covering paying for college and graduate school. You can follow her on Twitter or email her at fpowell@usnews.com.