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Explainer: scoring student loan servicers

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This fall, college graduates across the country will start to send payments on their student loans to their servicers. Loan servicers are companies that collect payments on all sorts of loans, including mortgages, auto loans, and student loans. Sometimes, the original lender will be the one collecting payments. But often, a loan servicer is chosen for you by the lender.

For the bulk of student loans, there’s a fairly unique process to determine who services new loans in the Department of Education’s Direct Loan program. Loan volume is assigned based on how satisfied users are with the servicer, in addition to how well the servicer is at collecting payments and avoiding borrower default. In other words, servicers get more volume if borrowers, schools, and federal personnel give them high ratings and if they are successfully getting borrowers to pay.

We decided to take a closer look at how new volume is awarded to the four largest Direct Loan servicers by analyzing the Servicer Performance Reports released to the public each quarter. These four nonbank servicers are scored on five measures, and they’re graded on a curve.

Scores on each of these equally-weighted categories determine the allocation of new Direct Loan volume to servicers. The final Servicer Performance Report of the year was recently released. Here are the results over the past year.

Servicer performance by metric and by quarter 2012-2013


Servicer Loan defaults (by number of loans) Loan defaults
(by dollar value)
Borrower survey School survey Federal personnel survey
2012-13 Academic Year, First Quarter
FedLoan Servicing (PHEAA) 1.21% 0.71% 74.33 78.00 72.00
Great Lakes 1.46% 0.86% 74.67 83.33 72.00
Nelnet 0.66% 0.40% 72.67 77.33 68.00
Sallie Mae 0.91% 0.56% 73.00 74.00 69.00
2012-13 Academic Year, Second Quarter
FedLoan Servicing (PHEAA) 1.42% 0.91% 75.00 79.33 73.00
Great Lakes 1.70% 1.04% 77.00 77.33 74.00
Nelnet 0.76% 0.48% 75.00 78.33 71.00
Sallie Mae 0.83% 0.49% 72.00 73.33 66.00
2012-13 Academic Year, Third Quarter
FedLoan Servicing (PHEAA) 0.98% 0.58% 73.33 81.33 76.00
Great Lakes 1.03% 0.65% 74.67 83.00 72.00
Nelnet 0.58% 0.36% 77.33 74.00 71.00
Sallie Mae 0.64% 0.37% 74.00 77.00 69.00
2012-13 Academic Year, Fourth Quarter
FedLoan Servicing (PHEAA) 0.91% 0.52% 73.67 77.00 78.00
Great Lakes 1.11% 0.63% 75.67 82.67 76.00
Nelnet 0.59% 0.35% 74.00 77.67 70.00
Sallie Mae 0.54% 0.29% 73.67 78.00 75.00

Now, let’s take a look at the overall rankings for the whole year. A ranking of first means a servicer was the best of the group, and a ranking of fourth means a servicer was the worst of the group in a particular category. Again, these scores are rankings, so first doesn’t mean the servicer is “good,” nor does fourth mean the servicer is necessarily “bad.”

Servicer Rank by Metric 2012-2013


Servicer Loan defaults (by number of loans) Loan defaults
(by dollar value)
Borrower survey School survey Federal personnel survey
Nelnet 1st 1st 2nd 3rd 3rd
FedLoan Servicing (PHEAA) 3rd 3rd 3rd 2nd 1st
Great Lakes 4th 4th 1st 1st 2nd
Sallie Mae 2nd 2nd 4th 4th 4th

Note: First represents the highest ranking for a given metric, fourth represents the lowest ranking.

As shown above, Great Lakes performs the best overall when it comes to borrower and school satisfaction, but the worst when it comes to loan performance. Sallie Mae ranks the worst in borrower, school, and federal personnel satisfaction. Nelnet scores the best on loan performance, but sits in the middle of the pack on the satisfaction surveys.

The Department of Education publishes a formula on how it converts these scores to new volume. Based on these results, it appears that Nelnet will get the highest allocation of new servicing volume of these four servicers, while Sallie Mae will receive the lowest.

What if you don’t like the servicer who is assigned to your loan? While you generally can’t call and request that your loan is switched to a specific servicer, there are some triggers that could lead to a servicer change. For example, with federal student loans, if you “consolidate” multiple types of federal student loans or submit a certification form for loan forgiveness, you might find that you have a new servicer.

We have already begun to supervise both banks and nonbanks in the mortgage servicing industry. Last month, we released a report about what our examiners have been finding, including sloppy account transfers, poor payment processing, and loss mitigation mistakes. We’ve received complaints about similar issues from private student loan borrowers, including complaints about significant problems experienced by military families.

In March of this year, we proposed supervising nonbank student loan servicers to address potential problems and hold financial institutions accountable if they break the law.

If you’re one of the many who are about to face your first student loan bill after graduation, we can help you learn more about your repayment options. Check out our Repay Student Debt tool to learn more. And if you are facing a specific problem on your private or federal student loan, you can file a complaint. Good luck!

Rohit Chopra is the CFPB’s Student Loan Ombudsman. Learn more about student loan performance data.

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