Sec. 452. Improved student loan servicing and debt collection practices

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Section 456 ( 20 U.S.C. 1087f ) is amended by adding at the end the following: A contract entered into under this section for the servicing of loans made or purchased under this part shall include— a provision that prohibits the servicer from marketing to a borrower of a loan which the servicer services, a financial product or service while the borrower is enrolled in an institution of higher education; a provision that, after the borrower is no longer enrolled in an institution of higher education, the servicer may only market a financial product or service to the borrower through an opt-in rather than an opt-out system; and a provision that, to the extent practicable, the servicer shall clearly disclose in any written material or correspondence sent or made available to the borrower (including correspondence and disclosures on the website of the servicer) that the material or correspondence is in relation to a Department of Education loan.

A contract entered into under this section for the servicing of loans made or purchased under this part shall include a provision that any rights and remedies available to borrowers against the servicer may not be waived by any agreement, policy, or form, including by a predispute arbitration agreement. The Secretary shall conduct a study to determine whether it is efficient and effective to contract with private entities under this section for the collection of loans made or purchased under this part that are in default.

For purposes of the study described in paragraph (1), the Secretary shall evaluate efficiency and effectiveness in terms of— the cost incurred by the Federal Government for the collections of defaulted loans under this part through contracts under this section, and such cost in comparison with the costs of other methods by which debt owed to the Federal Government are collected or recovered, including the collection of any unpaid Federal income taxes; the consumer protections provided to the borrower who has defaulted on a loan under this part through the collections process; the impact of the collections process for defaulted loans under this part on the integrity of the loan program carried out under this part; and borrower experience, as determined through borrower surveys.

As part of the study conducted under this subsection, the Secretary shall calculate the average recovery cost, per dollar recovered, through the collection of defaulted loans made under this part, in the aggregate for all borrowers of defaulted loans and disaggregated for the following categories of borrowers of defaulted loans: Veterans with a service-connected disability (as defined in section 101 of title 38, United States Code). Individuals who are entitled to benefits under section 223 of the Social Security Act (42 U.S.C. 423).

Individuals who are allowed an earned income tax credit pursuant to section 32 of the Internal Revenue Code of 1986. Recipients of assistance under the supplemental nutrition assistance program established under the Food and Nutrition Act of 2008 (7 U.S.C. 2011 et seq.). The Secretary shall consult with the Secretary of the Treasury, the Administrator of the Social Security Administration, the Secretary of Veterans Affairs, and the Secretary of Agriculture, as appropriate, in order to identify individuals in the categories described in clauses

(i)through

(iv)of subparagraph

(A)and to calculate the average recovery cost per dollar recovered for each category of borrowers. The Secretary may directly carry out collection activities for a subset of defaulted loans under this part, instead of awarding contracts under subsection (b)(2) for such activities, if the Secretary determines it would better inform the study required under paragraph (1). By not later than the date that is 1 year after the date of enactment of the Higher Education Affordability Act , the Secretary shall prepare and submit to the authorizing committees a report that includes the findings of the study conducted under paragraph (1). Not later than 1 year after the date of enactment of the Higher Education Affordability Act , the Secretary shall submit to the authorizing committees, and make available to the public— a certification that the Secretary has determined, based on the results of the study conducted under subsection (d), that— the use of private entities for the collection of defaulted loans made or purchased under this part is necessary to maintain the integrity of the loan program carried out under this part; the collection costs paid to such private entities under the contracts authorized by this section, in the aggregate and for each category of borrowers described in subsection (d)(3)(A), are reasonable; and expending funds for such collection costs is in the best financial interest of the United States; or a notification that the Secretary will not issue the certification described in subparagraph (A). Notwithstanding subsection (b)(2), beginning on the date that is 1 year after the date of enactment of the Higher Education Affordability Act , the Secretary shall not enter into any contract with a private entity under this section for the collection of defaulted loans made or purchased under this part if the Secretary did not issue the certification described in paragraph (1)(A) by such date. The Secretary shall terminate any contract with an entity for the collection of defaulted loans made or purchased under this part if the entity, an affiliate of that entity, or a service provider of the entity is found to have committed a violation of— the prohibition on unfair, deceptive, or abusive acts or practices under section 1031 of the Consumer Financial Protection Act of 2010 ( 12 U.S.C. 5531 ), including the regulations promulgated under such section, relating to the services performed pursuant to a contract under this section; or the Fair Debt Collection Practices Act ( 15 U.S.C. 1692 et seq. ), including the regulations promulgated under such Act, relating to the services performed pursuant to a contract under this section. If the Secretary terminates a contract with an entity under paragraph (1), such entity— shall not be eligible to participate in the next award cycle for contracts relating to the collection of defaulted loans made or purchased under this part that follows the date of termination of the contract; and shall not be eligible to receive any new contract relating to the collection of such defaulted loans during the 2-year period beginning on the date of termination. In any case where the Secretary obtains evidence that any person or entity has engaged in debt collection practices described in paragraph

(1)that may constitute a violation of Federal law, the Secretary shall transmit such evidence to the Director of the Bureau of Consumer Financial Protection for further proceedings under the appropriate law. Nothing in this paragraph shall be construed to affect any other authority provided to the Secretary to disclose information to a Federal agency. . The Secretary of Education, in consultation with the Director of the Bureau of Consumer Financial Protection and the Secretary of the Treasury, shall— conduct a study as to whether specialty servicing contracts in the Federal Direct Loan Program under part D of title IV of the Higher Education Act of 1965 (20 U.S.C. 1087a et seq.) could better serve varying segments of student loan borrowers, and, in particular, the unique needs of borrowers in delinquency or experiencing partial financial hardship and the allocation of servicer resources to assist such borrower segment; and not later than 180 days after the date of enactment of this Act, submit a report to the Committee on Health, Education, Labor, and Pensions and the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Committee on Education and the Workforce and the Committee on Financial Services of the House of Representatives, on the study described in subparagraph (A). In this subsection, the term specialty servicing contract means a contract— entered into pursuant to section 456 of the Higher Education Act of 1965 ( 20 U.S.C. 1087f ) for the servicing of loans made or purchased under part D of title IV of such Act ( 20 U.S.C. 1087a et seq. ) that provides for servicing loans for a distinct and specified subset of borrowers; and that may be compensated at a greater level for such services, as determined appropriate by the Secretary of Education. The Secretary of Education, in consultation with the Director of the Bureau of Consumer Financial Protection and the Secretary of the Treasury, shall conduct a report— on the compensation and incentive structure for servicers of loans made, insured, or guaranteed under title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.) and whether servicers adequately encourage repayment, as well as the use of alternative repayment options and discharge where appropriate; and that includes an analysis of the criteria utilized by the Department of Education in determining performance-based allocation of account volume in entering into contracts for servicing of loans made or purchased under part D of title IV of the Higher Education Act of 1965 ( 20 U.S.C. 1087a et seq. ), and the effectiveness of those metrics in promoting repayment. In conducting the report under paragraph (1), the Secretary of Education, in consultation with the Director of the Bureau of Consumer Financial Protection and the Secretary of the Treasury, shall seek and take comments from the public. If the report conducted under paragraph

(1)includes recommendations on measures to improve the incentive structure, the report shall also include the procedures to implement such recommendations. The report conducted under paragraph

(1)shall be published not later than 180 days after the date of enactment of this Act. Not later than 180 days after the date of enactment of this Act, the Secretary of Education, in consultation with the Director of the Bureau of Consumer Financial Protection and the Secretary of the Treasury, shall publish a report that identifies whether the public has adequate visibility into the market of loan servicing under part B of title IV of the Higher Education Act of 1965 (20 U.S.C. 1071 et seq.) to adequately assess the performance of such servicing under such part, including— the utilization of alternative repayment plans; the distribution of delinquent and defaulted loan balances; and loan performance by institution type. If the Secretary of Education, in consultation with the Director of the Bureau of Consumer Financial Protection and the Secretary of the Treasury, determines that the public does not have enough visibility into the market of loan servicing, as described in paragraph (1), the Secretary of Education, in consultation with the Director of the Bureau of Consumer Financial Protection and the Secretary of the Treasury, shall establish a plan to disclose such information necessary to provide for such visibility. The Secretary of Education shall periodically issue a report, at times determined appropriate by the Secretary, about the challenges borrowers face in the servicing of their student loans, impediments to the efficient and effective servicing of loans under title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.), and any changes, including protections for consumers, that should be considered to improve postsecondary education loan servicing for all borrowers, servicers, taxpayers, and the Department of Education.

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Sec. 452

Improved student loan servicing and debt collection practices

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