by Kala Mueller
The U.S. Department of Education is responsible for assigning those who received federal student loans to loan servicers after they graduate. These are companies that handle payments, provide customer service, and send information to credit reporting bureaus. The Department currently contracts with 11 servicers.
However, last week, the Department announced that it had signed contracts with five new companies who will take over federal student loan servicing: EdFinancial Services, F.H. Cann & Associates LLC, MAXIMUS Federal Services Inc., Missouri Higher Education Loan Authority (MOHELA), and Texas Guaranteed Student Loan Corporation (Trellis Company).
Contracts with current servicers Nelnet, Navient, Great Lakes, and FedLoan Servicing/PHEAA, among others, are set to expire in December, though could be extended for another year through short-term contracts. Lincoln-based Nelnet, one of the Department’s major contractors, is not happy with the decision (to say the least) and has filed a formal protest with the Government Accountability Office. A decision is expected in July. However, if the Department proceeds as announced, customers will have their loans moved to one of the five servicers listed above.
While the Department said the move is motivated by a desire for a more streamlined process for borrowers and greater accountability for servicers, historically, servicing transfers have created problems and confusion. Following the Department’s last major servicing overhaul in 2015, the Consumer Financial Protection Bureau noted that, “When servicers change, payments may be lost, consumers may incur surprise late fees, and processing problems and missing account records can knock borrowers off track on repaying their loans.” As someone who experienced a change in servicers in 2015, I can attest to all of this.
This is, of course, perhaps most concerning for those who are currently on an income-based repayment plan and making payments toward Public Service Loan Forgiveness (PSLF). If you are pursuing PSLF, you should:
- Download and save records of payment history and correspondence to mitigate the risk of this information being lost in a servicing transfer.
- Submit an Employment Certification Form, if you haven’t done so recently. This will provide a recent accounting of all payments you’ve made prior to the transfer. Some people are opting to wait until October to ensure they’ve received credit toward PSLF for the 6-month administrative forbearance resulting from the CARES Act, which is set to expire on September 30, 2020.
- Be vigilant as to what is happening with your loans/payments if and when a servicing transfer occurs.
Until notified otherwise, borrowers should continue to make payments through their current loan servicers.
Kala Mueller is the Director of Public Interest Programs at the University of Nebraska College of Law. She is a member of the college’s Pro Bono Committee, the Nebraska State Bar Association's Pro Bono Collaborative, and the Nebraska Regional Advisory Council for the Midwest Innocence Project. She received her B.S. from the University of Nebraska-Lincoln and her J.D. from the University of Wisconsin Law School, where she served as a senior editor for the Wisconsin Journal of Law, Gender & Society. Before joining the law college, Kala worked as a prosecutor and with a civil litigation firm.