Federal: Advocacy Letter to Federal Student Aid Office on Technological Issues

Denise Carter  

Acting Chief Operating Officer

U.S. Department of Education

Federal Student Aid

830 First St NE,

Washington, DC 20002

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Re:       The Office of Federal Student Aid’s Technological Issues Impacting the Student Lending Process

Dear Ms. Carter,

On behalf of the American Fintech Council (AFC) and its members,^[1] I am writing to you to convey our deep concerns regarding the current state of technology in the U.S. Department of Education’s Federal Student Aid (FSA) office and the severe impact that this is having on students, their families, and the student lending industry.

AFC’s mission is to promote an innovative, transparent, inclusive, and customer-centric financial system by fostering responsible innovation in financial services and encouraging sound public policy. AFC members are at the forefront of fostering competition in consumer finance and pioneering ways to better serve underserved consumer segments and geographies. Our members are also improving access to financial services and increasing overall competition in the financial services industry by supporting the responsible growth of lending and lowering the cost of financial transactions, allowing them to help meet demand for high-quality, affordable financial products.

AFC members operating in the student lending space are comprised of loan originators and servicers, as well as companies that offer other innovative services, such as a unique debt and savings platform for student borrowers. To assist borrowers effectively, all of these companies rely on the work conducted by FSA to ensure students have safe, reliable, and consistent access to the resources they need to understand their cost of attendance, financial aid package, and loan repayment options.

However, we have learned through conversations with our members and recent work conducted by the U.S. Government Accountability Office (GAO) that FSA suffers from severe programmatic and technological issues that have impinged its abilities to effectively serve prospective, current, and former students with their financial aid, borrowing, and repayment needs.^[2] AFC has identified three areas where FSA’s severe programmatic and technological issues have created significant harm to student borrowers and those companies seeking to serve them, which necessitate the steadfast modernization of processes and practices. Specifically, these areas are FSA’s

1.    Troubled rollout of its new simplified Free Application for Federal Student Aid (FAFSA)form;

2.    Consistent issues providing student loan data to loan servicers; and

3.    Inability to provide permissioned third-party access to student loan data.

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Taken together, these issues convey a distinct need for FSA to significantly reform its processes and systems in a manner that is befitting of the modern financial services industry and the digital-first consumer demand underpinning it. At each stage of the student lending process, FSA has shown the need to improve its programs and technologies to modernize its offerings for students, their families, colleges, and student lenders.

Within each of these issues, individuals are being harmed due to the lack of technological capabilities at FSA. The troubled rollout of FSA’s new simplified FAFSA form exemplified the significant technological issues at FSA and caused severe upheaval in the education journeys of thousands of prospective students. As noted by GAO Director Melissa Emrey-Arras when discussing the agency’s audit of FSA’s troubled rollout of its new simplified FAFSA form, the Department admitted there were more than 40technical issues with the form during launch and large groups of students who were not able to complete applications—one technical issue impacted hundreds of thousands of students, with low- and middle-income students being hurt the most.^[3] To remedy the issues with the FAFSA rollout, GAO made a number of recommendations to the FSA that centered on improving the technological capabilities of the office.^[4] AFC fully concurs with GAO’s recommendations.

Further, we have heard from companies who service both federal and private student loans, that FSA has proven ineffective in providing timely and accurate data to these loan servicers. At a time when the amount of misinformation regarding student lending and repayment programs is at an all-time high, it is imperative that FSA ensures that student loan servicers receive timely and accurate data that they can use to assist their borrowers. Without the requisite data, loan servicers have been ill-equipped to provide accurate information to borrowers. In turn, these borrowers have faced confusing and shifting perspectives on how they should most efficiently and effectively repay their student loans based on their situations and the repayment options available to them.

In addition, FSA has not taken crucial steps to assist in the implementation of the SECURE 2.0 Act of 2022(SECURE 2.0 Act)^.[5]Specifically, Under Section 110 of the SECURE 2.0 Act, employers are permitted to provide matching contributions for employees based on their payments on student loans. In an effort to assist in the implementation of Section 110, AFC members developed programs that leverage permissioned student loan data in accordance with guidance from the Internal Revenue Service to ensure that employers can effectively provide match contributions based on their employees’ qualified student loan payments. The efficient flow of permissioned student loan data is necessary to effectively complete this matching process. Unfortunately, we have learned that FSA has not pursued the processes needed to ensure durable data access, such as the development of an application programming interface (API), into FSA and/or the National Student Loan Data System, to support the efficient transfer of permissioned student loan data, assuming user consent is granted for the purpose of the use case at hand.

Further, in absence of an API, third parties must be able to leverage data aggregation capabilities to connect to student loan servicers in order to capture the federal student loan data necessary to address the requirements for Section 110 of SECURE 2.0 Act laid out by the IRS, and to ensure borrowers are able to claim the employer match. This data is crucial to ensuring that all parties, including but not limited to the IRS, employers, recordkeepers, third party administrators, and even payroll companies responsible for calculating the retirement match, can support borrows in claiming the employer. Match. In fact, complete disruption has been inflicted industry wide as a result of a newly published modal across the student loan servicers’ websites that alleges it is a federal crime to use common place data aggregation capabilities, available industry wide in every other facet of the financial services landscape, upon the instruction of the Department of Education and Unified Servicing and Data Solution. According to our internal research, without the ability to engage in the employer matching program allowed under Section 110 of the SECURE 2.0 Act, at least 8 million student loan borrowers will miss out on matchable contributions totaling at least $35 billion each year.

AFC recognizes that FSA may not have the authority to conduct this activity without legislation explicitly permitting the office to allow permissioned third parties access to student loan data. However, given the significant impact that this issue has on student loan borrowers, to the extent that FSA has the authority to improve the efficient transfer of permissioned student loan data, AFC believes that it should pursue activities to achieve this aim.

As a trade association dedicated to the development of responsible innovation in financial services, AFC understands the importance of developing robust operations and practices throughout the data collection, retention, and provisioning process. The three issues highlighted above represent key areas where AFC believes FSA can improve its technological capabilities for the benefit of students, their families, colleges, and student lenders. In accordance with good governance practices and the spirit of the Consumer Financial Protection Bureau’s rulemaking on personal financial data rights, AFC respectfully requests that FSA

1.    Prioritize implementing GAO’s recommendations regarding the troubled FAFSA rollout;

2.    Pursueactivities that will provide timely and accurate data to student loan servicers;

3.    Develop processes and programs that will improve the efficient transfer of permissioned student loan data, and, where needed, work with the Congress to establish safe and secure processes for permissioned third parties to access student loan data.

AFC thanks you for your consideration of our requests and stands ready to act as a resource to assist FSA in its efforts to implement our requests.

Sincerely,

Ian P. Moloney

SVP, Head of Policy and Regulatory Affairs

American Fintech Council

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[1] American Fintech Council’s (AFC) membership spans student loan originators and servicers, EWA providers, lenders, banks, payments providers, credit bureaus, and personal financial management companies.

[2] U.S. Government Accountability Office, FAFSA: Education Needs to Improve Communications and Support Around the Free Application for Federal Student Aid, GAO-24-107407,(Sep. 24, 2024), available at https://www.gao.gov/products/gao-24-107407.

[3] Testimony of Melissa Emrey-Arras, U.S. Congress, House of Representatives, Committee on Education & The Workforce, Hearing before the Subcommittee on Higher Education and Workforce Development. 118^th Cong. 2^ndsess., Sep. 24, 2024.

[4]  Ibid, GAO-24-107407.

[5] Pub. Law 117–328,Div. T—SECURE 2.0 Act of 2022.

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