There's a Good Chance Your Student Loan Will Soon Have a New Servicer. How to Manage the Transfer
About 16 million federal student loan borrowers will have new loan servicers by the end of the year.
The Education Department recently confirmed that it will not renew its contracts with the Pennsylvania Higher Education Assistance Agency (also known as FedLoan Servicing) and Granite State Management and Resources, which together manage nearly 10 million loans. And following approval this week from the Education Department, student loan servicer Navient will exit the loan servicing space and transfer its 5.6 million accounts to another company.
In theory, the process of changing servicers should be fairly seamless. However, a 2015 report from the Consumer Financial Protection Bureau acknowledged that servicing transfers can be disruptive for borrowers, causing confusion, lost payments, surprise fees and other costly issues. Plus, borrower advocates worry confusion may be more likely this year. The transition, which affects more than a third of Americans with student debt, is taking place shortly before federal student loan payments are set to resume following nearly two years of forbearance.
Student loan servicing gets an overhaul
There are a few reasons why student loan servicers seem to be making a mass exodus, according to Mark Kantrowitz, a student loan expert and author of the book, “How to Appeal for More College Aid.” For one, the Direct Loan program is more complex today, with several repayment plans, deferments and forbearance options, the pandemic-era payment pause and many change orders from the Education Department. “This increases the cost of servicing federal student loans, with all the various due diligence requirements,” he said.
Student loan servicers have also been under intense scrutiny from policymakers and the public in recent years, after widespread reports of errors and misinformation, some of which have resulted in lawsuits.
In fact, the cancellation of servicing contracts coincides with the department’s recent announcement that it will implement “stronger standards for performance, transparency, and accountability for its student loan servicers.” New contract terms for 2022 are supposed to help the department’s Federal Student Aid office (FSA) better monitor and address servicing issues. The terms outline four specific ways the department will measure how servicers interact with borrowers, as well as financial incentives for servicers who succeed at helping borrowers avoid falling behind on their payments.
Where borrowers’ accounts will be transferred
Navient has been in negotiations with Maximus to transfer its contract and exit the student loan servicing arena. Maximus, which already has a contract with the Education Department, manages the accounts of borrowers who've defaulted on their loans. Though the department technically extended Navient’s contract through December 2023, it also approved the company's request to stop servicing loans and move its accounts to Maximus. The process, known as a contract "novation," is expected to be completed before the end of this year.
FedLoan is currently in the process of transferring some of its loans to MOHELA, an existing servicer. Some accounts will also eventually go to Nelnet, Edfinancial and Navient/Maximus.
Borrowers whose loans are serviced by Granite State Management and Resources will have their loans transferred to Edfinancial Services.
What to do if your student loan servicer is changing
Jessica Ferastoaru, a student loan specialist with Take Charge America, said it‘s important to understand that even though a student loan is moved from one servicer to another, your loan terms do not change.
“Your loan status, repayment plan and interest rate all stay the same,” she said. “All that has changed is the company that will be managing your loan moving forward.” Additionally, she added, if your payments were postponed with a deferment or forbearance, they should remain postponed after the servicer transfer.
That said, given the student loan servicing industry’s track record, there could be some hiccups ahead. Borrowers can take a the following simple steps now to ensure the transition happens as smoothly as possible:
Keep making payments
Unless your student loan payments are postponed, be sure to continue to make your payments to your current loan servicer until you receive correspondence confirming that your loans have been transferred. “Once the transfer has occurred, it is a good idea to contact your new loan servicer as soon as possible or confirm your next payment date and set up your payments,” Ferastoaru said.
Double-check your contact information
The Education Department has already started sending information to affected borrowers. To ensure you receive important updates about servicer changes and more, log into the FederalAid.gov website (or create an account if you haven’t already) and make sure your personal information is up to date in the system.
Get a copy of your loan details
While you’re logged in, Kantrowitz recommended saving a copy of your loan information now, before the transition. Get a list of all your loans, along with your payment history, current loan balances, interest rates and monthly payment amounts.
Certify your public service hours
If you’ve been pursuing Public Service Loan Forgiveness and are serviced by FedLoan (which oversees the PSLF program), you should file an Employment Certification Form (ECF) now to establish a record of the number of qualifying payments you’ve made thus far. If you were recently denied forgiveness, Kantrowitz said you should file an appeal before your servicer changes.
Once your loans are officially transferred, it’s important to verify that no important details were lost in the transition. Create an online account with your new servicer right away to check that your loans were transferred successfully. You can also pull a free copy of your credit reports from each of the three major credit bureaus at annualcreditreport.com and review them for missing or incorrect loan information. If you see any errors, you should contact your new servicer right away and dispute the error with the bureau that’s reporting it.
Kantrowitz also noted that if you are currently signed up for autopay, where your monthly loan payments are automatically transferred from your bank account to the loan servicer, you’ll need to sign up again with the new servicer. Keep in mind that many offer a small rate discount for doing so.
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