Reading SAFRA's Fine Print: Non-Profits and State Agencies Tossed a (Servicing) Bone

Here is a summary of the detail that SAFRA provides about the servicing role of non-profits and state agencies. 

• Who is included:  "The Secretary shall, if practicable, award multiple contracts, through a competitive bidding process, to entities, including eligible not-for-profit servicers, to service loans originated under this part."

• Criteria for contract award:  "...price, servicing capacity, and capability, and may take into account the capacity and capability to provide default aversion activities and outreach services."

• Special considerations:  "In awarding contracts to such State agencies, and such eligible not-for-profit servicers, the Secretary shall, to the extent practicable and consistent with the purposes of this part, give special consideration to State agencies and such servicers with a history of high quality performance and demonstrated integrity in conducting operations with institutions of higher education and the Secretary."

• Non-profit servicers appear to get guaranteed allocation: "Notwithstanding any other provision of this section, in each State where one or more eligible not-for-profit servicer has its principal place of business, the Secretary shall contract with each such servicer to service loans originated under this part on behalf of borrowers attending institutions located within such State, provided that the servicer demonstrates that it meets the standards for servicing Federal assets and agrees to service the loans at a competitive market rate, as determined by the Secretary."

• Secretary's determination of competitive market rate:   "In determining such a competitive market rate, the Secretary may take into account the volume of loans serviced by the servicer. Contracts awarded under this paragraph shall be subject to the same requirements for quality, performance, and accountability as contracts awarded under paragraph (2) for similar activities."

• Allocation of volume to non-profit servicers:  "Lesser of loans of 100,000 borrowers (which would include loans of borrowers who had used servicer previously) OR the loans of all borrowers attending institutions within the state."

• Additional allocation at discretion of Secretary:  "The Secretary may allocate additional servicing rights to an eligible not-for-profit servicer based on the performance of such servicer, as determined by the Secretary, including performance in the areas of customer service and default aversion."

• Secretary will make all attempts to avoid split servicing of loans.  

Comments

[nmatthews]

Great blog!!

[Craigie]

Hard to see how they could possibly meet objective standards of quality, performance, integrity, accountability and default aversion, but there will be extensive political pressure to include them. Maybe they could be asked to cover the administrative costs of the bidding process and systems development.