A loan servicer is an intermediary between the Education Department and a borrower. They deal with payment collection and borrower assistance on behalf of the Education Department. Some federal student loan servicing companies are FedLoan Servicing, Granite State, Navient, Nelnet, etc.
However, till the year-end, significant changes will happen. This year, three loan servicers announced that they were quitting their obligations. Sure, such news seems troubling considering that borrowers will resume repayment in 2022, after 22-months of non-repayment. It will be hard to transfer obligations of around 16 million borrowers to new loan servicers during such a massive repayment event. Yet, it is also a good time for planning your debt repayment strategies.
This guide gives general information about loan servicers and presents the expected changes shortly. Besides, we advise and guide you through the following processes once federal student loan companies change.
Who is a Loan Servicer?
A loan servicer is an organization or company that deals with student loans. Federal loan servicer processes payments on behalf of the Education Department. In other words, federal student loan servicing companies are intermediaries among the Education Department and the borrowers.
Loan servicers collect and monitor payments. They also help borrowers to enroll in the right repayment plans. If student debtors are facing challenges, loan servicers should guide them and propose alternative solutions. Additionally, whenever the ED makes changes or announcements, loan servicers maintain smooth communication and information flow.
When you get a new loan, the Education Department assigns a loan servicer to you. You can find the loan servicer from the Student Aid dashboard. Alternatively, you can call the Federal Student Aid center to get information. Here is the list of contact details of federal student loan servicing companies:
Source: Student Aid.gov
When to Contact Federal Student Loan Servicing Companies?
As visible from the above table, there exist several federal student loan servicing companies. You can contact them for various issues.
First, keep in mind that if it is your first year of loan disbursement, you can contact the school’s financial aid professional for information. He/She can inform you about your loan status or the timing of your loans. Later, you can contact the loan servicer if you withdraw, graduate, stop studying, or study less than part-time.
In general, it is advised to maintain regular communication with the loan servicer. You also need to make yourself accessible. For example, if you change address or phone number, ensure you inform the servicer.
How do Loan Transfers Happen?
In some cases, the Education Department transfers your loan from one federal loan servicer to another. In this case, the ED still owns your student loan. Therefore, only the servicer who deals with the repayment is changing.
If a transfer is happening, the borrowers will be informed through email or mail. Next, the new loan servicer sends a welcome letter and provides contact details. Usually, the whole history of loan repayment is transferred to the new servicer. However, it is possible that you will see only the history after the change online. Besides, there should be no changes to your loan terms, even if the loan is transferred.
Keep in mind that till exact notification, you should continue making payments to existing loan servicers. Then follow the instructions of the new loan servicer to make payments and track them.
Student Loan Servicers Change
If you have followed the latest news, you might know that federal student loan servicing companies are changing. This news is a significant change in student debt discussions. Changing a loan servicer is not easy because the records should be delivered error-free. The new one should work hard to maintain the operations as before.
Three major federal student loan servicing companies – Navient, FedLoan Servicing, and Granite State- are giving up on their positions. As a result, more than 30% of federal borrowers will have new loan servicers. It means if you are one of 16 million student debtors that these three companies service, you could expect a change soon.
We will first discuss what happened and then advise you on the following actions if the change involves you.
1. Navient Quits
Navient serves around 12 million students, and it is one of the largest federal student loan servicing companies. It services different types of federal loans, including Direct, Parent, and Federal Family Education loans. In September 2021, it announced that it would quit loan servicing and transfer its operations to Maximus.
However, this transfer cannot happen without the Education Department’s approval. Navient announced that it had already requested the ED to review the process. The main reason for quitting is the increasing pressure from the ED, Congress, and other organizations like Consumer Financial Protection Bureau (CFPB).
Why Navient Quits?
There might exist several reasons why Navient loan servicer quits. According to Forbes, one of the main reasons can be increased changes from the Biden Administration and organizations like CFPB.
Biden has several plans to improve student debt and student loan forgiveness processes. He aims to simplify repayment, provide better forgiveness opportunities and increase transparency. Meanwhile, CFPB announced that their main target is monitoring loan servicers and determining if they do not fulfill their obligations. In 2017, the organization even sued Navient because of incorrectly processed payments, failing to provide proper guidance to borrowers, etc.
Additionally, Sen. Elizabeth Warren blamed Navient that the loan servicer overcharged the ED by $22.3 million. Warren also pinpointed Navient as a loan servicer that could not perform its obligations properly. All these changes signal that there would be more pressure on federal student loan servicing companies, and they will frequently be at the center of discussions.
2. FedLoan Servicing Quits
FedLoan Servicing is also one of the largest federal student loan servicing companies. It serves around 20% of all federal loan borrowers, which makes approximately 9 million debtors. Besides, this loan servicer is the one dealing with Public Service Loan Forgiveness. Unfortunately, forgiveness has less than a 2% success rate which created a lot of discussions and conflicts.
Hence, FedLoan has been at the center of accusations. Similar to Navient, FedLoan has also been accused by Sen. Elizabeth Warren. She mentioned that it was the responsibility of the loan servicer to inform borrowers about rules so that they could get relief. Moreover, CFPB added that the loan servicer failed to check payments and certify them so that the borrowers achieve PSLF. Besides, FedLoan faced several lawsuits.
Meanwhile, the loan servicer did not admit any wrongdoing. The officials also mentioned that the loan servicer is not responsible for failing PSLF applicants. Accordingly, the success rate is low because the process is over-complex.
The current contract of FedLoan with the Education Department ends in the middle of December 2021. The loan servicer announced that it would not renew or extend the contract.
3. Granite State Management and Resources Quits
Another federal loan servicer quitting this year-end is Granite State. This loan servicer deals with around 1.3 million borrowers. They announced this news when the other federal loan servicer, FedLoan Servicing, also decided to quit. Considering that the service will end during the year-end, the matter gets more complicated. Currently, federal student loans are in forbearance status due to COVID-19.
As a result, borrowers are not required to make payments till January end, 2022. However, once they start repayment, loan servicers will face massive pressure because non-repayment periods last for an extended period. At such times of confusion, another challenge will be the transfer process from quitting loan servicer to the new one.
What Should You Do Next?
Federal student loan servicing companies are changing, and it is bringing drastic consequences. If you are one of the around 16 million borrowers whose loan servicer will change, here is some helpful information.
1. Your Loan Servicer Might Change
If the companies mentioned above are serving your federal student loans, this service can change. However, there is still no exact decision. For the transfer of data and procedures from Navient to Maximus, the Education Department should approve it. If approved, Navient will no longer serve your loans. However, others who are served by federal student loan servicing companies should not worry as their servicer will stay the same.
2. Maximus Might or Might not Serve to You.
Besides, even if the Education Department ends the contract with Navient, there is no exact decision whether Maximus will take the responsibility. The ED might decide to agree with a different loan servicer to deal with your loans. In all cases, the ED will notify you about the changes.
3. You Can Change Your Loan Servicer
If you are not satisfied with the service of either company, you can initiate a change. However, for this purpose, you should either refinance your loans. Student loan refinancing happens when you get a loan and use the money to cover the existing debt. Your new loan will bring you a new lender.
This strategy is effective if your lender or loan servicer is pressuring for payments. Yet, refinancing might not be desirable for federal loan borrowers because they will lose access to all federal student aid benefits.
4. Get to Know Your Options
Federal loan servicing companies have frequently been accused of providing unsatisfactory services. Allegedly, they failed to help borrowers in need. For example, if a borrower struggles financially, they advise forbearance rather than enrolling in a more affordable repayment plan.
Others are accused of processing payments incorrectly, which leads to the loss of eligibility to forgiveness or late fees. In all cases, it is better if you do your research. Get to know forgiveness, repayment options, forbearance, deferment, and default statuses. In this way, you can ensure that your student loans are adequately treated. Do not leave the control of your loans entirely to loan servicers.
5. What will be Different with New Loan Servicers?
Nothing much. You will continue making payments as always or as before COVID-19 non-repayment period. A loan servicer is like customer service. They deal with the loans and process your payments. Therefore, even if you get a new loan servicer, there will not be dramatic changes to your regular payments. However, make sure that you continue making payments to your current loan servicer till you receive further notification from the Education Department.
6. How to Determine Loan Servicer?
If you are not sure which one of the federal loan servicing companies are serving you, there are ways to check. First, you can log in to your Federal Student Aid profile. Here you can view the loan servicer assigned to your federal loans. In addition, you can call Federal Student Aid for further information.
If you want to contact the loan servicer, you can find contact details online, too.
7. When Does Repayment Start?
Currently, it is expected that student loan repayment will start after January end, 2022. If a further extension is not granted, you will be required to repay debt as always in February. The Biden Administration has already noted that there is no expected extension.
It is a Good Time for Planning
Changing federal student loan servicer can be frustrating. We hope that the transition will be smooth and no errors will happen for the borrowers. However, it is also a good time for planning. Changing loan servicer can be an event for celebration if you are fed up with your servicer.
During this period, you can get familiar with possible debt resolution strategies. Once you change the loan servicer, you can contact them and discuss your options.
Enroll in a Different Repayment Plan
During COVID-19, many people lost their jobs or their salaries decreased. Overall, the number of borrowers with financial struggles increased. It is possible that you will not be able to repay debt effectively as before the pandemic when the repayment starts in 2022.
If you have financial challenges, it can be a good idea to change your repayment plan. Different federal student loan repayment plans exist with various repayment rates and payback periods. The most affordable repayment options can be Income-driven repayment plans. These plans require only 10-15% of your discretionary income each month. Hence, even if you struggle financially, you will still be able to afford these payments.
You can contact your new loan servicer to consult which repayment plan is most suitable for your finances. Unfortunately, previously there have been cases when loan servicers did not recommend the best strategies. Hence, it is also a good idea to contact a third-party debt specialist. Like those in Student Loans Resolved, debt experts can analyze your finances and develop a sound debt management strategy. We even provide a free consultation in case you need one.
Apply for Forgiveness Plan
Another federal student aid program is student loan forgiveness. Forgiveness can help you get rid of student loans even without paying a penny from your pocket. Different forgiveness plans exist. For example, one of the most popular ones is Public Service Loan Forgiveness, and it is a good time for application.
As mentioned, one of the federal loan servicing companies- FedLoan Servicing- is dealing with PSLF applications. As FedLoan Servicing is quitting, a new loan servicer will be appointed for this forgiveness program. Sure, there is no exact finding that the loan servicer caused 98% failure of PSLF applications. However, a new loan servicer can provide a more effective service.
Additionally, the Biden Administration plans to improve this forgiveness program. Biden mentioned that the program is overly complicated for applicants in this plan for education. Recently, the officials requested information from individuals on how satisfied they are with the service. It is expected that the PSLF process will change soon.
Sometimes, borrowers are contacted by scammers who claim to work for loan servicers. They are asked for personal information or fees for specific processes. Keep in mind that federal student loan servicing companies cannot get money for enrolling in repayment plans or helping with forgiveness programs. If someone is asking fees for maintenance of your loans, enrollment, etc., avoid further communication.
Federal loan servicers are responsible for processing payments, enrolling borrowers in suitable plans, dealing with forgiveness programs, etc. Unfortunately, recently, there appeared many conflicts around federal student loan servicing companies. In addition, the Congress, Consumer Financial Protection Bureau, and Biden Administration created challenges for the loan servicers and put massive pressure on them. Hence, it is not surprising that three loan servicers are quitting their obligations till the year-end. This guide explains to you what will happen and what your future steps should be.