Modernizing the Federal Student Loan Experience

Introduction

The fate of government programs and policies often hinges on their effective implementation. The most well-crafted policies can falter in the absence of skillful execution. Successful implementation ensures that goals are achieved, resources are utilized efficiently, and the intended beneficiaries receive the intended benefits. Furthermore, effective implementation can greatly improve public trust and government credibility. As noted by Derick Brinkerhoff and Benjamin Crosby in their book, Managing Policy Reform: Concepts and Tools for Decision-Makers in Developing and Transitioning Countries, visible success in policy implementation fosters citizens’ confidence in the government’s ability to address societal challenges. Conversely, implementation failures can lead to disillusionment and skepticism. In essence, the effective execution of government programs and policies not only achieves intended outcomes but also shapes public perceptions, government legitimacy, and the long-term sustainability of policy efforts.

Implementation should be top of mind for the Joe Biden administration as it looks to reform and modernize the student loan experience. Reports from the Government Accountability Office (GAO) and Department of Education have found the current system to be rife with opaque eligibility requirements, incorrect guidance for borrowers, and frequent challenges in payment processing and credit reporting. The stakes are high: approximately 40+ million Americans hold over $1.7 trillion in student loans. A modernized system could expedite loan forgiveness and repayment, potentially saving up to $100 billion.

Reforming the student loan system would be a hallmark domestic achievement for the Biden administration and could provide much-needed trust in government. However, as noted by Brinkerhoff and Crosby, how the program is implemented will be vitally important. Georgetown professors Donald Moynihan and Pamela Herd have observed that successful policy implementation is a question of personnel as much as it is strategy, requiring well-functioning bureaucracies and skilled public servants on the front line. Thus, effectively marshalling the federal bureaucracy will be vital for any reform effort.

To better strategize, U.S. policymakers should look to two cases: the U.S. Postal Service (USPS) and the Affordable Care Act (ACA). The USPS’s web platform is the gold standard for interactive federal programs, while the ACA and its public-facing platform, Healthcare.gov, are a study in technical rollout. Examining these cases and the current state of the student loan experience underscore three main takeaways.

1. Large-scale, successful federal engagement efforts often involve three key elements:   

a) developing a modern website through continuous improvement

b) funding one-on-one assistance, often through community groups; and

c) allowing citizens to access and manage their own data through Application Programming Interface (API) integrations.

2. Implementing trusted private and nonprofit partnerships and technical integrations allowed Healthcare.gov to achieve a 50 percent increase in enrollment following its initial launch strategy.

3. Modernizing the student loan experience would provide a significant enrollment boost and could surpass $100B in savings by enabling direct repayment and forgiveness enrollment capabilities through authorized private and non-profit third-party websites.

Lessons From the USPS and Other Federal Programs 

In February 2024, the USPS had the most popular federal website, with over 40 percent more traffic than the second most-trafficked website, the National Library for Medicine’s National Center for Biotechnology Information. Other notable federal websites included the Internal Revenue Service (IRS), the National Weather Service, the Centers for Disease Control and Prevention, the Social Security Administration, USA Jobs, and StudentAid.gov.

Out of those websites, StudentAid.gov (which includes StudentLoans.gov) is one of the few at this scale that does not have a robust API option. APIs allow software developers and third-party websites to innovate on top of the federal platform, provide a smoother user experience, and increase uptake and utilization of the federal programs. Other units of the Department of Education, however, do support APIs, and there are entire teams dedicated to data analysis and statistics for both K-12 and higher education. However, this would be similar to the USPS providing individual-level data only to shipping companies, and not to individuals looking to track their package.

Most of these other platforms deal with sensitive data and have been able to ensure it is protected and secure while still fostering innovation and broader utilization. For example, some (such as the IRS) require entities to go through a registration process to gain access to ensure they are good actors. Other platforms rank the sensitivity of the data and adjust ease of access accordingly. Despite their differences, all have gone beyond providing a simple file with aggregated data, and instead have found ways to make individual data, reports, and interconnectivity functional.

The most trafficked federal platform, across multiple individual web pages, belongs to the USPS. Impressively, the USPS has also been one of the most popular federal agencies every year. In 2023, the Pew Research Center rated the USPS the second-most popular federal agency (behind the National Park Service) with 77 percent of respondents having a favorable impression of the USPS.

The USPS is achieving this while operating at a tremendous scale: in 2022, they processed 127 billion pieces of mail, operated more than 31,000 offices, and had over 3.5 billion website visitors. The USPS’s web platform provides all three essential ingredients: a modern website, one-on-one support, and APIs for partners.

Modern Website

The USPS website makes nearly every capability available via API to third parties also directly available to individual users. At 3.6 billion visits in 2022, this makes the USPS website not just the most visited federal website, but one of the top visited websites in the United States overall. With such traffic, simply maintaining availability is a significant task.

Individualized Support

Today, mention the USPS and the iconic images of a mailperson and a mail truck immediately come to mind. The USPS has over 30,000 offices and 500,000 career employees—giving them unparalleled in-person capabilities over any other agency in the federal government. Processing physical products (packages and mail) increases the need for personnel, but it also enables a range of customer support capabilities.

API and Partnerships

The postal service has wide-reaching partnerships and digital tools, such as APIs, to facilitate third-party partners. For example, the USPS provides APIs to support calculating prices, verifying an address, tracking packages, and estimating delivery dates. Each of these are critical functions, providing specific data to millions of customers.

It has supplemented those tools with more in-depth partnerships. These include digital partnerships with companies like Stamps.com, Pitney Bowes, and Endicia, who were all approved to provide stamps and postage directly to customers via electronic methods. The USPS also partners as a shipping provider with other big carriers, either utilizing entities such as FedEx via contracts to fulfill USPS shipping requests or the reverse with the USPS performing last-mile delivery services for companies such as DHL. Due to their scale, these relationships are inevitably complicated—but the result is clear: more customers are getting their mail than ever before.

Deep Dive: Healthcare.gov

The Healthcare.gov Rollout

Before launch, the implementers in the Department of Health & Human Services (HHS) of the Affordable Care Act knew that the new Healthcare.gov federal marketplace would not be a one-stop solution for all consumers. Even if the website was functioning perfectly, many consumers would not go to the website, pick a plan, and enroll without assistance. Of course, the website did have significant technical hurdles, which only expanded the number of individuals looking for assistance. Some found the website understandable, others sought out in-person or phone-based support, while still others looked to third-party digital resources for help. Many bounced between resources and did not have a linear experience using Healthcare.gov.

Almost immediately, third-party groups began helping users select the best plan before sending them to Healthcare.gov simply for enrollment. This included government resources (such as federal and private navigators), nonprofit resources (such as Enroll America), and private resources (such as eHealth Insurance and HealthSherpa). Unfortunately, these third-party workarounds still provided a complicated experience for users who would start their enrollment process with one entity or platform and then finish that process with another.

Additional Enrollment Assistance and Targeted Communities

In-person assistance was extremely robust in the first few years of the rollout. According to a Kaiser Family Foundation study, “More than 28,000 full-time-equivalent staff and volunteers helped an estimated 10.6 million people during the first Open Enrollment period.” This included enrollment in state marketplaces. Notably, more than 70 percent of those assister programs were supported privately or by a federal safety net clinic program—meaning they were not funded by the federal marketplace. The demand for this assistance was there: over 80 percent of assister programs reported that consumers did not understand the choices offered to them or lacked the confidence to apply on their own. One great feature of the in-person assisters was their ability to specialize in the enrollment of harder-to-reach populations. That expertise is hard, if not impossible, to have nationally. 

One successful example was the Enroll Harlem! initiative in New York. Enroll Harlem! was a collaborative effort involving local community organizations, healthcare providers, and advocacy groups. The initiative recognized that Harlem had specific healthcare-access challenges and aimed to address them through targeted outreach and education. They organized community events, workshops, and enrollment fairs in Harlem to engage residents and provide assistance in navigating health insurance options, highlighting the importance of tailoring outreach and enrollment assistance.

HHS recently announced $100 million in funding to partner organizations for the 2024 open enrollment cycle, continuing its track record of investing in this type of support and partnership.

Digital Public-Private Partnerships and Healthcare Enrollment 2.0

Online, HHS quickly attempted to leverage outside support. Bryan Sivak, the chief technology officer for HHS, approached third-party websites such as HealthSherpa to make it easier for them to connect their consumers with Healthcare.gov. While they partnered directly, the main drawback was that consumers would need to still go from the third-party website over to Healthcare.gov to complete enrollment. Still, these websites drove significant volume and were able to update their interfaces more rapidly and nimbly than the federal government.

By 2018, HHS was determined to help improve this experience even further through Enhanced Direct Enrollment (EDE). EDE allowed approved private-sector entities, such as insurance companies and online brokers, to offer a more seamless enrollment pathway for consumers seeking health insurance plans through Healthcare.gov. Specifically, it allowed consumers to complete enrollment in federal plans from start to finish on a third-party website.

The impact of EDE has been multifaceted. First and foremost, it has significantly reduced the complexity of the enrollment process by enabling consumers to apply and choose plans seamlessly through trusted third-party platforms. By offering a smoother enrollment pathway, EDE has not only increased user satisfaction, but also extended the reach of ACA coverage to a broader segment of the population. Moreover, EDE has helped expand the capacity of Healthcare.gov by distributing web traffic to approved private partners, contributing to smoother website performance during peak enrollment periods.

The numbers tell a clear story. In 2021, only 53 percent [PDF] of enrollment came directly through the federal Healthcare.gov marketplace, while another 10 percent came via a phone call center. Digitally, 20 percent enrolled by starting on a third-party site before completing enrollment on Healthcare.gov, while 17 percent fully enrolled through third parties. These changes had a tremendous overall impact on enrollment numbers.

EDE resulted in 3 million more people enrolled on top of the 5.2 million who enrolled directly through Healthcare.gov. That’s more than a 50 percent increase thanks to modern digital options. Those numbers translate to millions more with insurance, millions more getting free annual screenings, improved health outcomes, fewer medical bankruptcies, and many other positive benefits. That success is due to a modern implementation approach as opposed to the policy structure of the program.

Applications for the Federal Student Loan Experience

While each federal agency has different challenges—scale, funding, independence—some common elements can be applied to federal student loans. These include expanding funding for one-on-one support, improving the primary website, and facilitating partnerships via APIs and other capabilities.

The need is significant. Borrowers pursuing enrollment in the Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment (IDR) programs have encountered substantial obstacles that have impeded their access to these vital financial relief initiatives. A study conducted by the Government Accountability Office in 2019 revealed that only a small percentage of borrowers who applied for PSLF had their loans forgiven, with complex eligibility requirements and a lack of program clarity contributing to the low approval rate. Similarly, the Student Borrower Protection Center reported in 2020 that over 60 percent of borrowers had received incorrect information from their loan servicers about their eligibility for IDR plans, which led to confusion and difficulty in navigating the enrollment process.

This is backed up by data from the Department of Education itself. According to the Federal Student Aid Office’s 2021 data, thousands of PSLF applications were denied due to factors such as inadequate employment certification or missing information. Moreover, administrative errors within loan servicing systems have been pervasive, leading to miscalculations in payment counting for PSLF or inaccuracies in determining monthly payments for IDR plans. A report from the Consumer Financial Protection Bureau in 2020 underscored these discrepancies, highlighting that borrowers often experienced issues related to payment processing and incorrect credit reporting. As a result, a considerable number of borrowers have faced denials, delays, and financial distress, emphasizing the critical need for reforms to enhance communication clarity, streamline administrative processes, and ensure equitable access to these debt relief programs.

While the Department of Education can and should continue to make the policies of the programs simpler and easier to follow, it will be a challenge to fully resolve all of these problems.

Unprecedented Needs Versus Funding Constraints

In addition, the Department of Education now faces an unprecedented challenge: the resumption of student loan payments following COVID-19 forbearances. Student loan payments began to resume for the first time in over three years in October 2023 with a repayment onramp continuing through at least June 2024. Over forty million borrowers are resuming payment and over 40 percent of those loans now have a new federal contractor assigned to them for billing and account management. These borrowers are overall in a worse place than the average U.S. consumer when it comes to debt balances coming out of the COVID-19 payment pause. According to a recent report from TrueML, the total average debt of a consumer with student loans increased 14.6 percent from 2020 to 2022, while that of consumers without student loans decreased 4.8 percent.

Unfortunately, this challenge is being met not with more resources—more call centers, more in-person assistance—but instead less. While the Department of Education had requested a 30 percent increase in funding, according to Politico, congressional funding to federal services was instead slashed by 10 percent.

Modernizing the Student Loan Repayment Program

With this backdrop, the Department of Education and Congress should look to lessons from the ACA and create new options to support borrowers. There’s no doubt more funding and better servicing are needed, but that alone is not enough. By modernizing and leveraging partnership organizations and newer technologies, enrollment in valuable programs like Teacher Loan Forgiveness, PSLF, and IDR plans can be expanded by millions of borrowers.

Furthermore, as Healthcare.gov has proven, programs can prevent bad actors from gaining access to user data or taking actions contrary to the borrowers’ best interests. Healthcare enrollment is arguably even more sensitive than student loans, and yet they have found a way to make it work. Making it easier to work directly with trustworthy partners would allow the Department of Education to further decrease the likelihood that individuals turn to untrustworthy or fraudulent solutions. The Department of Education could also impose requirements for third parties to gain access to the whitelist. An easy example would be the requirement that all partners provide a direct link to the Department of Education to consumers who would prefer to navigate the process on their own, which would undercut many of the scams that exist today. Fraudulent actors would lose access, and borrowers would be protected. With that said, these new capabilities would still modernize the process and provide a foundation for new innovative approaches to enrollment. Three simple technical solutions would have a big impact:

1. Borrowers own their data.

a) Users can easily take their own data with them or grant ongoing access to borrower-permissioned data via API capabilities

2. Approved organizations can submit applications for borrowers electronically.

a) The partners would have the ability to pass data (e.g. machine-readable IDR application data) directly to Federal Student Aid to facilitate enrollment.

3. Borrowers can complete enrollment through approved third-party websites.

a) For example, an employer could offer a PSLF employer certification website for their employees that integrates with their HR system.

Currently, the best blueprint for modernization is the NextGen student loan servicing plan from the Department of Education. It is a long-term initiative by the Department of Education to overhaul the way federal student loans are serviced. The plan aims to provide borrowers with a more streamlined and user-friendly experience, while also holding servicers accountable for their performance. While it proposes many good improvements, it does not incorporate many of the concepts that Healthcare.gov adopted. Furthermore, challenges such as the recent rollout of the new Free Application for Federal Student Aid (FAFSA) demonstrate the peril of launching dramatic overhauls via large contracts, as opposed to continuous and ongoing improvement and the development of in-house technical resources.

Modernization Could Unlock Nearly $100 Billion in Student Loan Savings

According to recent data from Federal Student Aid, as of Q2 2023, nearly nine million borrowers have enrolled in an income-based repayment plan of some type. If similar capabilities to Healthcare.gov were rolled out and resulted in a 50 percent increase in enrollment the savings for those additional 4.5 million borrowers would be massive. PSLF, another large-scale program, currently has just over two million people enrolled out of an estimated ten million that work for an eligible employer. That’s less than 20 percent of those borrowers likely eligible to earn credits through that program. A 50 percent increase, or an additional million borrowers at historical forgiveness averages, would be another $96 billion in potential forgiveness. Combined, rolling out new features to boost enrollment could reduce payments by U.S. consumers by over $100 billion. These estimates may be conservative when compared to the number of eligible borrowers for these programs.

Conclusion

The Department of Education should continue to design new policies aimed at streamlining student loan repayment and targeted forgiveness, and will require increased funding to do so successfully. While financial support is crucial, it must be paired with additional innovation; a forward-looking approach would integrate new technology and encourage collaborative innovation with external entities online and offline. By fostering a dynamic ecosystem that combines efficient policies, adequate resources, and technological advancement, the Department can catalyze transformative change in the landscape of student loan management.