Dept. of Education urges 10 million student borrowers to prepare for servicer switch now, but misses important details
The U.S. Department of Education has begun alerting millions of student loan borrowers of major credit management changes that will evolve in the coming months and urges them to prepare now. But his advice is incomplete.
Last month, two of the Department’s premier student loan contractors – FedLoan Servicing (a branch of the Pennsylvania Higher Education Assistance Agency, or PHEAA) and Granite State Management & Resources – said the department that they will not renew their contracts at the end of the year, which effectively stops the processing of student loans on behalf of the federal government. As a result, the Department of Education needs to find new loan service providers for about 10 million borrowers and will initiate remittances to these new borrowers in the coming months.
The ministry has started notifying borrowers of the upcoming changes. In emails sent to borrowers whose accounts are with FedLoan Servicing, the ministry warned borrowers to prepare to switch their loan service provider. The ministry stated, “FedLoan Servicing has announced that it will stop servicing federal student loans. Over the next year, your loans will be moved to a different service provider. Until that change is made, FedLoan will remain your loan service provider. ”The department noted that service changes will not affect the terms of the underlying loans or a borrower’s eligibility to issue, discharge and repay student loans.
The ministry asked borrowers to update their contact details. “Incorrect contact information could result in missing important updates about your new servicer and how to prepare for re-payments,” the emails read. The emails also notified borrowers to prepare for repayment, but contained ambiguous information for borrowers who auto-enrolled their student loans, saying only that borrowers should “look out for information from FedLoan Servicing and your new loan service provider, to manage your car loans. Debit. “Typically, borrowers will have to re-register with a new servicer for automatic debit programs after making a transfer.
FedLoan Servicing also posted a prominent message on its website informing borrowers of the upcoming changes. “In the coming months we will work with the Federal Student Aid (FSA) to carry out a smooth transition of your loans to another service provider,” said the press release. “FedLoan Servicing will continue to service all loans until they are transferred to another FSA-designated servicer.” FedLoan directed borrowers to track updates through a dedicated page from the Department of Education website.
Referrals initiated by the Department of Education and other student loan lenders have historically been disruptive and in some cases harmful and costly to borrowers. The consumer protection office mentioned in a 2015 report that processing transfers can result in lost or missed payments, unexpected late fees, and lost records. Borrowers en route to Public Lending (PSLF) may be particularly at risk right now given FedLoan Servicing’s unique role in administering the program; Many of these borrowers are embroiled in ongoing disputes with FedLoan over payments that do not count towards the PSLF, in some cases due to previous loan service transfers that resulted in lost or encrypted records.
Recent ministry notices of upcoming servicing remittances do not warn borrowers of the possibility of lost records or payment processing irregularities. Still, borrowers should protect oneself by downloading and keeping all of their student loan records (including payment histories and correspondence) and monitoring their credit reports. Borrowers who are on track for PSLF may want to borrow additional steps B. the escalation of disputes and the re-certification of their employment if their loans are already serviced by FedLoan.
The Department of Education has not announced a specific schedule for processing transfers, nor has it indicated which new student loan administrators will take over the accounts currently managed by FedLoan Servicing and Granite State Management. Meanwhile, the ongoing moratorium on student loan payments is set to expire after September 30, forcing borrowers to resume payments in October. Lawyers have warned that the coincidence of the two events be a disaster for borrowers. The Biden administration is allegedly still considering whether to extend the student loan break further.