FedLoan, Navient, and Granite State: Why Are These Loan Servicers Not Renewing Their Contracts With the Federal Government?
Editor's Note: Since the writing of this article, President Biden signed the debt ceiling bill on June 4, canceling the federal student loan payment pause as of Aug 30, or “60 days after June 30.” Later this month, the Supreme Court will decide whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. Loan payments are expected to resume in October.
Three organizations are leaving the federal student loan servicing business to refocus on private student loans.
FedLoan Servicing, Navient Corp., and Granite State Management & Resources have acknowledged their plans amid the Covid-19 pandemic and the politically charged environment surrounding America’s $1.6 trillion of federal student loan debt carried by 43 million borrowers.
A Case of Oversight and Revenue Loss
FedLoan Servicing, Navient, and Granite State are leaving the federal student loan business largely because of economics and politics. Federal officials suspended federal student loan payments and interest in March 2020 in response to the pandemic, which affects a company’s ability to profit from federal student loan servicing fees.
Some U.S. legislators have also advocated for broad federal student loan debt cancellation, which, if it came to fruition, could diminish a loan servicing company’s bottom line.
Jack Remondi, president and CEO of Navient, said in September that his company planned to “focus on areas outside of government student loan servicing.” The company later issued investor documents saying that Navient could be affected by “damage to our reputation resulting from cyber-breaches, litigation, the politicization of student loan servicing, or other actions or factors.”
Navient has been the subject of Sen. Elizabeth Warren’s withering criticism and scrutiny by state attorneys general, and the company was likely to face increased regulatory oversight.
The Pennsylvania Higher Education Assistance Agency (PHEAA), a public corporation that conducts its student loan servicing operations nationally as FedLoan Servicing and American Education Services, informed the U.S. Department of Education in July 2021 that it “would not be accepting an extension to its current student loan servicing contract beyond what is needed to ensure a smooth transition for its borrowers,” according to its 2021 annual financial report.
The current FedLoan Servicing contract is set to expire on Dec. 14, 2021, thanks to fees that were “reduced” by the federal student loan payment holiday. PHEAA also suggested that broad federal student loan debt cancellation “could result in a significant decrease” in FedLoan’s servicing revenues.
FedLoan has also been the only servicer of federal student loans for the Public Service Loan Forgiveness program, whose 98% rejection rate of loan balance cancellation invited scrutiny. In October, the government announced plans to revamp the program and wipe out $1.74 billion in federal student loan holdings.
Granite State Management & Resources, a merged unit of the New Hampshire Higher Education Loan Corp., announced in July that its nonprofit foundation “will not seek or accept renewal of its federal student loan servicing contract” that expires on Dec. 31, 2021, in order to focus on its private student loan operations.
Who Is Replacing the Loan Servicers?
On Sept. 29, the Department of Education’s Federal Student Aid office announced that it would soon begin transferring some FedLoan borrowers to the Missouri Higher Education Loan Authority (MOHELA), while other FedLoan accounts would be transferred to other servicers yet to be determined.
The office also announced that Granite State had begun transferring borrowers to Edfinancial and that all transfers should be completed before the end of the year.
MOHELA has provided full-service loan servicing since the 1980s, and Edfinancial Services describes itself as a company with more than 25 years of experience in the student loan industry.
On Sept. 28, Navient and Maximus announced an agreement for Navient to transfer its federal student loan accounts to Maximus. The agreement, if approved by the Federal Student Aid office, is expected to be finalized this year.
What Does This Mean to Borrowers?
Nearly 16 million people are to send their federal student loan payments to new loan servicers after the automatic transfers: about 8.5 million borrowers with FedLoan, 6 million with Navient, and 1.3 million with Granite State.
The transfer of Granite State’s federal student loan portfolio to Edfinancial and FedLoan’s to different servicers, including MOHELA, “will not impact the existing terms, conditions, interest rates, loan discharge or forgiveness programs, or available repayment plans on the loans,” Federal Student Aid announced. “It also will not change the temporary payment suspension and 0% interest benefits borrowers are currently receiving due to the coronavirus emergency.”
Borrowers also should expect no change to their existing federal student loan terms if the Navient-Maximus transfer is approved.
Any borrower affected by loan servicing transfers can expect to receive notifications from the Department of Education and their new loan servicer.
To check on your current student loan servicer, log in to your Federal Student Aid account or call 800-4-FED-AID (800-433-3243).
What Should Affected Borrowers Do?
Federal Student Aid is advising any borrower affected by the planned transfers to provide updated contact information to their outgoing loan servicing company to ensure that they receive important updates.
Borrowers also can do other things to prepare for the end of federal student loan relief after Aug. 31, 2022, when the payment and interest pause is scheduled to end.
When the federal student loan payment holiday ends, borrowers without a solid plan could face a financial cliff: More than 43 million Americans with federal student loans will need to resume payments, with interest, in February.
Could It Be a Good Time to Refinance?
To avoid some of the confusion surrounding these outgoing federal student loan servicers, borrowers could consider refinancing. When you refinance with a private lender, you take out a private student loan that pays off your existing student loans.
The goal is to attain a better rate and have just one monthly payment. Even shaving 1% off a loan rate can add up to significant savings over time.
Keep in mind that refinancing federally held student loans means giving up federal benefits like access to income-driven repayment plans and federal forbearance.
But if your current interest rates are high or your loan balance is high, refinancing might pay off.
FedLoan Servicing, Navient, and Granite State plan to stop servicing federal student loans, alluding to politics and economics. After a major transition, 16 million affected borrowers and millions more will need to be ready to resume payments in February after the federal student loan payment holiday ends.
Borrowers who want more control over their federal student loan debt — and who think they could qualify for a lower rate — may want to look into refinancing. With SoFi, there are no application fees, hidden fees, or prepayment penalties.
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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