You borrow federal student loans from the government, but the Department of Education doesn’t service those loans. Instead, that duty is contracted out to qualified financial companies and loan servicers. The loan servicers collect your payments and provide customer service.
The Department of Education still oversees the federal student loan program, though. So, they’re responsible for handling contracts, finding new loan servicers, and terminating relationships with current ones.
This summer, the ED made several changes that affect which companies will be servicing student loans in the future.
Now, you shouldn’t find yourself with a new loan servicer just yet, but you can expect changes in the next year or so.
We’ll let you know all about the changes, when they take effect, how they could affect your loans, and more.
5 New Student Loan Servicers Signed with the ED in June 2020
On June 24, 2020, the U.S. Department of Education (ED) signed contracts with five new federal student loan servicers.
Why?
The ED hopes that these loan servicers will make the long-awaited NextGen student loan platform a reality.
What is NextGen?
NextGen is a student loan platform designed to enhance the student loan borrowing, repayment, and management experience for all federal student loan borrowers. Students would be able to access all of their federal student loan information from one website instead of needing accounts with several. In other words, a truly one-stop-shop for all things federal student loans. The system would hold servicers more accountable too—something the ED has had trouble with in the past.
In a 2017 press release from the ED, Dr. Wayne Johnson, Chief Operating Officer of Federal Student Aid (at the time) had this to say about the creation of NextGen, “The result will be a significantly better experience for students – our customers – and meaningful benefits for the American taxpayer.”
Right now, NextGen is still in the works, but the announcement of new loan servicer contracts moves it a step closer to fruition.
List of New Federal Loan Servicers 2021-2022
Five new loan servicers began working with the Department of Education over the summer, but they aren’t servicing student loans quite yet.
According to an August 4, 2020 blog post from Mark Brown, current Chief Operating Officer of Federal Student Aid, “These companies won’t start doing this work [student loan servicing] immediately. We’ve got to first put the tools, technology, and training in place to ensure that you get the right answer with every interaction.”
- EdFinancial: a financial company that acts as the student loan servicer for 15 of the top 100 lenders in the United States
- Maximus Federal: a veteran government contractor that serves the Department of Education along with 30 or so other federal agencies and departments
- MOHELA: one of the ten largest student loan holders and servicers in the country that also goes by the names Higher Education Loan Authority of the State of Missouri and Missouri Higher Education Loan Authority
- Trellis Company: a non-profit organization formerly called Texas Guaranteed Student Loan Corporation that currently administers Federal Family Education Loan Program loans
- F.H. Cann & Associates: a financial company that provides customer support and call center operations for the Department of Education’s Federal Family Education Loan Program
Duties of the New Loan Servicers
Once they’re cleared for full duty, the new loan servicers will work as part of the NextGen team. And they’ll do more than just collect payments and answer your student loan questions. These companies will also help you with any federal student aid questions you have. Whether you’re a student confused about grants and the FAFSA, or a financial aid officer at a college seeking clarification, the new servicers will be responsible for assisting you.
A date hasn’t been set yet for when the new team of five will assume all loan servicing duties, but it’s likely to begin sometime between 2021 and 2022.
Status of Current Federal Student Loan Servicers
The ED welcomed in the newly contracted servicers over the summer, but that doesn’t mean the current federal student loan servicers are done yet. Many saw their contracts extended for one or two more years to ensure a smooth transition from the current system to the anticipated NextGen platform.
Servicers with Contracts Extended Through December 2021
- FedLoanServicing (PHEAA)
- Navient
- Nelnet
- Great Lakes
Servicers with Contracts Extended Through March 2022
- Granite State (GSMR)
- HESC/EdFinancial
- MOHELA
- OSLA Servicing
Will any of those servicers stay on past their contract extension? It’s too early to tell who—if anyone—will be added to the NextGen team.
However, it’s safe to say Nelnet and Great Lakes won’t be added into the mix. A June 22, 2020, press release from Nelnet announced that they weren’t being considered for another long-term contract with the ED.
*Student loan servicer CornerStone had its contract extended through 2022, but in October 2020, the company decided to terminate the contract. According to Forbes, CornerStone’s loan portfolio will be transferred to FedLoan Servicing.
What Do the Changes Mean for Federal Student Loan Borrowers?
Student loan borrowers won’t see any changes yet. All existing federal student loan servicers had their contracts extended for at least another year to ensure a smooth transition. For now, continue with whatever you’ve been doing—making payments via your current loan servicer or simply waiting until payments resume in 2021.
That being said, it’s very likely you will get a new loan servicer in the next year or so. It will affect who you contact if you have a question about your loans and where you go to make payments. The Department of Education has assured borrowers that before any servicer transfers happen, you’ll be given ample warning time.
Before Changes to Loan Servicers Happen, Take These Actions
Protect your interests by taking a few simple steps before your loans are transferred to a new servicer.
Request Records from Your Current Loan Servicer
Ask your current loan servicer for your payment records. Ideally, the records will transfer seamlessly when you’re assigned a new servicer, but mistakes can happen. The records serve as proof of on-time payments if you’re seeking Public Service Loan Forgiveness or forgiveness through an income-based repayment plan.
The records can also help should you need to dispute any errors on your credit report regarding your student loans.
Download Copies of All Communications with Your Current Loan Servicer
Even if you’ve never directly communicated with your loan servicer, odds are that they’ve sent you quite a few emails and messages over the years. Download all copies of any written communications in your account. It’s unlikely that correspondences with your old loan service would transfer over to the new system.
Ideally, you’ll never need to use these documents, but if you do end up in a dispute over your account balance, the timing of when you paid off a loan, or any other detail, it could come in handy.
After You Get a New Loan Servicer, Take These Actions
Once your account(s) transfers to the new loan servicer, don’t just assume everything was done correctly. Keep a closer eye on your student loan accounts than you normally would for the first few months, at least.
Check Your Credit Report for Errors
As soon as your loans transfer, request a free copy of your credit report from AnnualCreditReport.com. Do this every few weeks after the switch. You can request free weekly reports from Equifax, Experian, and TransUnion through April 2021.
Check your credit report for any errors that might have occurred when your loans were transferred to the new servicer. Your credit score affects everything from whether you’ll get approved for a car loan to what interest rate you’ll get when you buy a home. Inaccurate information on the report can greatly affect your score.
See an error? You’ll need to dispute it. The documents and records you download will come in handy during the dispute process.
Monitor Your Account
As you adjust to the new loan servicer, be extra diligent with checking your student loan account. You need to make sure you’ve properly updated your payment information and that you’re aware of payment due dates. If you prefer AutoPay, you’ll need to make sure you get that set up too.
A monthly login is a great way to double-check that your payments went through and that you don’t have any fines or surprise fees.
Unless you’ve been making extra payments or have switched repayment plans, your monthly payment through the new servicer should be the same as it was with your old servicer.
