Student loan servicers handle billing and other services on behalf of the U.S. Department of Education, and they work directly with borrowers to assist them in repaying their student loans.
If you have federal student loans, you may have heard about some changes to federal student loan servicing and are wondering if any of them will affect you or your loans. Here are a few things you should be aware of.
Three of the eight servicers recently announced that they will cease servicing federal direct loans in the near future. FedLoan Servicing (PHEAA) and Granite State Management and Resources, or GSMR, will cease servicing federal student loans after their contracts expire in December 2021, as will Navient, which has signed an agreement with the Department of Education to transfer its accounts to another servicer.
Borrowers whose loans were assigned to one of these servicers – approximately 16 million people – will have their loans transferred to another servicer designated by Federal Student Aid, the agency responsible for administering federal student financial aid programs. Navient’s contract has been transferred to Maximus Federal Services, and GSMR recently announced that all of its accounts will be transferred to EdFinancial Services.
Borrowers with PHEAA-serviced loans will also be transferred to another servicer designated by FSA, and they will receive more information about their new servicer from both PHEAA and FSA. The FedLoan Servicing contract was set to expire in December 2021, but PHEEA recently announced a one-year contract extension until December 2022, giving more time to ensure that all loans are successfully transferred to other servicers.
Importantly, understand that if your servicer changes, the existing terms and conditions of your loan, as well as the loan forgiveness programs or repayment plans available to you, will remain unchanged. Furthermore, the temporary payment suspension and 0% interest benefits that, borrowers currently receive as a result of the coronavirus pandemic will be maintained on your loans. That period of forbearance is set to expire at the end of January 2022.
In the long run, the Department of Education has signed contracts with five companies that will work directly with federal student loan borrowers to provide direct customer service and back-office processing support for student and parent borrowers, as well as partners at postsecondary institutions. Maximus, EdFinancial, F.H. Cann & Associates, Missouri Higher Education Loan Authority, and Trellis Company, formerly known as the Texas Guaranteed Student Loan Corp., are the five companies. The new contracts are part of a larger effort to improve the delivery of federal financial aid programs through the Next Generation Financial Services Environment, or Next Gen.
FSA announced Next Gen in 2017, which will modernize the infrastructure that delivers federal student loans and other financial aid programs. Next Gen will eventually transform the entire system, from aid application to student loan repayment and collection activity.
The Federal Student Aid Administration (FSA) has begun to implement some changes, including a new StudentAid.gov website, a virtual assistant named Aidan, and the Student Loan Simulator tool. In the future, Next Gen will consolidate all student loan servicing operations behind a centralized loan processing platform, as well as make changes to accountability metrics for student loan servicers.
Next Gen intends to provide a much more standardized borrower experience if you have federal direct student loans. Instead of dealing with individual loan servicers, the FSA–supported by the five contractors–will serve as a one-stop shop for borrowers at every stage of the financial aid process.
If you have loans serviced by one of the three servicers that are leaving federal student loan servicing, keep an eye out for notices from the servicer and the FSA with information about the transfer. Read any notices carefully to learn who your new loan servicer will be and how to make payments.
Borrowers will be notified when all transferred loans have been completed. When you receive information from your new servicer outlining how to set up online account access and sign up for services such as auto-debit, make sure to follow the instructions as soon as possible.