Student Loan Transfers: What to Know About Servicing Changes

Student Loan Transfers: What to Know About Servicing Changes

About 16 million federal student loan debtors can have new loan servicers by the top of the 12 months.

The Education Department just lately confirmed that it’ll not renew its contracts with the Pennsylvania Higher Education Assistance Agency (also referred to as FedLoan Servicing) and Granite State Management and Resources, which collectively handle practically 10 million loans. And following approval this week from the Education Department, student loan servicer Navient will exit the loan servicing house and switch its 5.6 million accounts to a different firm.

In idea, the method of adjusting servicers needs to be pretty seamless. However, a 2015 report from the Consumer Financial Protection Bureau acknowledged that servicing transfers could be disruptive for debtors, inflicting confusion, misplaced funds, shock charges and different pricey points. Plus, borrower advocates fear confusion could also be extra probably this 12 months. The transition, which impacts greater than a 3rd of Americans with student debt, is going down shortly earlier than federal student loan funds are set to renew following practically two years of forbearance.

Student loan servicing will get an overhaul

There are a couple of explanation why student loan servicers appear to be making a mass exodus, in accordance with Mark Kantrowitz, a student loan knowledgeable and writer of the ebook, “How to Appeal for More College Aid.” For one, the Direct Loan program is extra complicated right this moment, with a number of reimbursement plans, deferments and forbearance choices, the pandemic-era cost pause and plenty of change orders from the Education Department. “This increases the cost of servicing federal student loans, with all the various due diligence requirements,” he stated.

Student loan servicers have additionally been beneath intense scrutiny from policymakers and the general public lately, after widespread stories of errors and misinformation, a few of which have resulted in lawsuits.

In reality, the cancellation of servicing contracts coincides with the division’s latest announcement that it’ll implement “stronger standards for performance, transparency, and accountability for its student loan servicers.” New contract phrases for 2022 are supposed to assist the division’s Federal Student Aid workplace (FSA) higher monitor and tackle servicing points. The phrases define 4 particular methods the division will measure how servicers work together with debtors, in addition to monetary incentives for servicers who succeed at serving to debtors keep away from falling behind on their funds.

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Where debtors’ accounts shall be transferred

Navient has been in negotiations with Maximus to switch its contract and exit the student loan servicing enviornment. Maximus, which already has a contract with the Education Department, manages the accounts of debtors who’ve defaulted on their loans. Though the division technically prolonged Navient’s contract via December 2023, it additionally accepted the corporate’s request to cease servicing loans and transfer its accounts to Maximus. The course of, generally known as a contract “novation,” is predicted to be accomplished earlier than the top of this 12 months.

FedLoan is at the moment within the technique of transferring a few of its loans to MOHELA, an present servicer. Some accounts will even finally go to Nelnet, Edfinancial and Navient/Maximus.

Borrowers whose loans are serviced by Granite State Management and Resources can have their loans transferred to Edfinancial Services.