Fourth student loan servicer quits 'broken' system

Fourth student loan servicer quits ‘damaged’ system

Major student loan servicer Navient (NAVI) is quitting the federal servicing enterprise, the corporate introduced Tuesday, handing off its 5.5 million debtors holding about $280 billion in federal student loans to Maximus, one other servicer.

Advocates and progressive lawmakers led by Senator Elizabeth Warren (D-MA) heralded the transfer, in mild of Navient’s troubled relationship with the federal authorities’s client safety our bodies. 

But the departure provides one other problem when the Education Department (ED) seems to be to finish the student loan cost pause in January — particularly after 4 different servicers stop prior to now yr.

“Even under the best of circumstances, this is a monumental task,” Persis Yu, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, informed Yahoo Finance. “It’s a process that needs to be managed very slowly and deliberately, [and] I have a lot of concerns about whether or not that can actually be done in the timelines that we have.”

Signage is seen on the offices of Navient in Wilmington, Delaware, U.S., June 9, 2021. REUTERS/Andrew Kelly

Signage is seen on the workplaces of Navient in Wilmington, Delaware, U.S., June 9, 2021. REUTERS/Andrew Kelly

‘Need to have hand-holding to this complete course of’

With Navient’s announcement, roughly 16.3 million student loan debtors shall be getting a brand new loan servicer in 2022. 

The Pennsylvania Higher Education Assistance Agency — which companies round 8.5 million student loan debtors — and Granite State — which companies round 1.3 million debtors — each referred to as it quits in July. Utah Higher Education Assistance Authority, which pulled out in October 2020, serviced round 1 million student loan debtors.

READ:   Extra Loan Repayments Calculator | ING

The departures come as the vast majority of the 43 million student loan debtors throughout the U.S should begin paying their loans once more. The funds have been paused, with out curiosity, since March 13, 2020, with the Biden administration not too long ago extending the pause by means of January 31, 2022.

Advocates expressed deep concern concerning the switch course of, given the brief timeline between October and February 2022. The U.S. authorities, which owns trillions of {dollars} in student loan debt, has already expressed that ending the cost pause must be fastidiously managed.

Navient’s departure apart, these transitions are going to be difficult, particularly given uncertainty round whether or not the servicers “have the staff capacity to handle the influx of borrowers who are going to be confused and are going to need to have hand-holding to this entire process,” Yu said.

Richard Cordray, chief operating officer of Federal Student Aid, which handles the trillion-dollar student loan portfolio, said in a statement that his agency is still reviewing documents and information from both Navient and Maximus “to make sure that the proposal meets all authorized necessities and correctly protects debtors and taxpayers.”

Richard Nicholls, 22, a graduate in engineering from The City College of New York is on his phone after his commencement ceremony in Manhattan on May 31, 2019. When asked about the issues he is most concerned about leading up to the 2020 election, he said,

Richard Nicholls, 22, a graduate in engineering from The City College of New York is on his phone after his commencement ceremony in Manhattan on May 31, 2019. REUTERS/Gabriela Bhaskar

‘Behind the scenes company’

Maximus for its part has expressed its intention to provide high-quality service for student loan borrowers with the payment pause ending. Maximus spokesperson Eileen Cassidy Rivera said in a statement to Yahoo Finance that the company was “dedicated to making sure a seamless transition for student loan debtors” and to help borrowers manage the re-starting of repayment come 2022.

READ:   When Student Loan Debt Can Be Good

But Yu and other advocates also expressed concern that Maximus, despite being a government contractor over the years, had largely been out of the public eye and doesn’t provide the same services that Navient does.

Maximus has until now run debt collection and management for ED, according to a blog post by the Student Borrower Protection Center (SBPC). And not many borrowers are aware of the company’s existence, said Yu.

“Maximus is an organization that has not been topic to a lot public scrutiny. It is a servicer, nevertheless it does not do the features that Navient, [the Pennsylvania Higher Education Assistance Agency], and the opposite ones do,” Yu explained. “So we do not have a observe file of the way it helps debtors navigate income-based reimbursement.”

And being a very “behind the scenes firm,” she added, “it is regarding that Navient can simply select its substitute and select somebody who will not be within the public eye, and who has no observe file.”

WASHINGTON, DC, UNITED STATES - 2019/07/23: U.S. Senator Elizabeth Warren (D-MA) speaks at a press conference during the introduction of a bill to cancel students loan debt held at the Capitol in Washington, DC. (Photo by Michael Brochstein/SOPA Images/LightRocket via Getty Images)

WASHINGTON, DC, UNITED STATES – 2019/07/23: U.S. Senator Elizabeth Warren (D-MA) speaks at a press conference during the introduction of a bill to cancel students loan debt held at the Capitol in Washington, DC. (Photo by Michael Brochstein/SOPA Images/LightRocket via Getty Images)

Navient’s problems

Navient has long been in the crosshairs of advocates and progressive lawmakers who believed the company was responsible for shoddy servicing, such as steering student loan borrowers into high-cost repayment plans or for deceptive practices from New Jersey to Washington.

Its departure was welcomed.

“Navient has spent decades misleading, cheating, and abusing student borrowers. The Federal student loan program will be far better off without them,” Senator Elizabeth Warren (D-MA) mentioned in an announcement.

READ:   Can You Refinance Student Loans After Consolidation?

“Ultimately, the student loan system is broken,” she continued. “The only way to guarantee that borrowers do not face the same predatory behavior from Navient’s replacement is to cancel student debt, so that no borrower’s future is held hostage by corporations profiting off their financial distress.”

YF Plus

YF Plus

Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected] Follow her on Twitter @aarthiswami.

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, YouTube, and reddit