What to Do If FedLoan Servicing Is Your Student Loan Servicer
Editors Note: Since the writing of this article, the federal Student Loan Debt Relief program has been blocked and the Department of Justice has filed an appeal with the Supreme Court. While the case is being reviewed, the Biden administration is extending the federal student loan payment pause into 2023. The US Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.
With payments and interest accrual on millions of federal student loans set to resume after Aug. 31 2022, some borrowers are starting to think about next steps. For nearly 10 million whose loan servicers have called it quits, the path forward is less clear.
FedLoan Servicing and Granite State Management & Resources are not renewing their contracts with the Department of Education after December.
The decision by the Pennsylvania Higher Education Assistance Agency, whose loan servicing arm is FedLoan, and the New Hampshire Higher Education Association Foundation Network, which operates its loan servicing under the Granite State name, may leave borrowers whose federal student loans they service wondering what to look out for in the months ahead. (Please note: Private student loans serviced by Granite State will not be affected by the change.)
A Big Transition for Millions
The 8.5 million borrowers affected by the decision of FedLoan Servicing and the 1.3 million by Granite State will have their loans transferred to other servicers. The Federal Student Aid office vowed to ensure that “borrowers are supported and not harmed during this transition” by providing oversight and holding servicers accountable, chief operating officer Richard Cordray said in a statement.
FedLoan’s exit could be particularly thorny because it has been the sole entity handling the Public Service Loan Forgiveness (PSLF) program (intended to forgive the remaining balance on Direct Loans after the borrower has made 120 monthly qualifying payments while working full time for a qualifying employer), and the TEACH Grant program (students agree to complete a teaching service obligation in order to receive a grant of up to $4,000 a year).
It will leave in its wake, though, widespread criticism that it has mismanaged those programs.
Borrowers have complained that their debt continues to grow because they can’t reach servicers for help, according to Insider.
The two loan servicers may not be the last to drop off the Department of Education roster. Several others will have contracts end within the next year or are operating on short contract extensions.
What Should Borrowers Do Now?
The FedLoan and Granite State pullouts coupled with resumption of payments for all federal student loan borrowers could spell trouble, some are speculating. Right now, there has been little communication to affected borrowers about what next steps might look like.
Borrowers may be especially vulnerable to errors during a servicer change. Here are some possible ways to prepare for the change.
1. Verifying Your Information
Look through your information with your current loan servicer and make sure your name, address, and contact information are up to date.
2. Retaining Records
It can be a good idea to print or download payment dates and amounts, and to log ongoing payments, for your records.
It’s also smart to keep copies of all correspondence.
3. Staying Alert for an Email or Letter
When the Federal Student Aid office transfers federally held loans, you’ll be notified by email or letter, or both. The communications will include your new servicer’s name and contact information.
Your new loan servicer also will communicate with you after your loans have been loaded into its system. Seven to 10 business days after that, the new servicer’s information should be available when you log in at StudentAid.gov and sign in with your Federal Student Aid ID. Or call the information center at 800-433-3243.
When you log in, you can also view your federal student balances, loan types, and interest rates. It could be a good time to look for any loans with especially high interest rates.
After the transferred loans have been loaded, the new servicer will send you information that explains how to establish online account access and sign up for automatic debit or web payments.
4. Trying to Resolve Conflicts ASAP
Contacting your current servicer with questions or concerns could be a good first step. Emailing ensures a paper trail.
Loan holders can also submit a complaint to the Consumer Financial Protection Bureau.
5. Considering Consolidating or Refinancing
Consolidating your federal student loans means combining them into one new federal Direct Consolidation Loan, with the rate based on the average of the loans rounded up to the nearest one-eighth of a percentage point. (Of note: If you make qualifying PSLF payments on a Direct Loan and then consolidate that loan, you’ll lose credit for the PSLF payments made.)
Refinancing means paying your federal or private student loans off with one new loan from a private lender, then making payments to that private lender. Although you’d lose federal benefits and protections like the ability to enroll in PSLF, loan forbearance, and income-driven repayment plans, refinancing may be worthwhile to consider if your current interest rates are high and if you’re in a better financial position now than when you took out your loans originally.
Whether you’re thinking of consolidating or refinancing, doing so before your student loan servicer changes may help you avoid any delays as you wait for the transfer to be completed.
Recommended: Student Loan Refinancing Calculator
What’s Your Plan?
As mentioned, the federal student loan payment and interest holiday that has been in effect since March 2020 will end after Aug. 31, 2022. This gives borrowers whose loans are serviced by FedLoan Servicing or Granite State and who are considering refinancing or consolidating before the moratorium expires a timeframe for taking action.
Nearly 10 million borrowers with federal student loans serviced by FedLoan Servicing and Granite State are in for a big change amid the scheduled end of the widespread federal student loan payment and interest pause.
Federal student loan holders who are considering refinancing or consolidating may wish to take action before their servicer changes.
Photo credit: iStock/Eva-Katalin
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.
CLICK HERE for more information.
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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