By Tiffany Moustakas, Editor at LinkedIn News
With student loan repayments resuming this fall, new research from the Consumer Financial Protection Bureau says that approximately one in five borrowers have some sort of financial risk factor that might make it difficult for them to keep up. A lot has changed since payments were paused in 2020: More than half of borrowers have higher debt-related expenses, while more than 1 in 13 are behind on some other repayment plan. Experts also say that risks will increase if the Supreme Court rejects President Joe Biden’s plan to cancel up to $20,000 in student debt in the coming weeks.
Buckle Up, More Student Loan Servicing Changes Are Coming
forbes.com • 4 min read
The Biden administration announced new student loan servicing contracts this week. These servicing contractors will administer the federal student aid system, including student loan forgiveness and repayment programs, on behalf of the Education Department.
The announcement comes as millions of borrowers are still contending with ongoing student loan servicing upheavals. But the changes are just one part of a larger effort across multiple administrations to make student loan servicing smoother and more centralized.
Here’s the latest.
Student Loan Servicing Has Been Bumpy For Borrowers
The Education Department contracts out student loan servicing operations to multiple third-party companies. These companies, called loan servicers, handle most day-to-day operations of the government’s sprawling federal student aid system. This includes taking payments, processing forms for repayment plans and student loan forgiveness, implementing deferments and forbearances, and fielding calls from borrowers.
Borrowers have already had to contend with significant student loan servicing changes during the last three years:
- FedLoan Servicing, which had handled the troubled Public Service Loan Forgiveness program, completed its withdrawal from the federal student loan servicing system last year. MOHELA has now taken over the program.
- Navient also recently withdrew from the Education Department’s student loan servicing system. Another company, called Aidvantage, took over many Direct student loan accounts (Navient still services private student loans and some commercially-held FFEL-program loans).
- Great Lakes Higher Education is currently in the process of transitioning many accounts to NelnetNNI -0.3%, another major department loan servicer.
Student loan servicer changes do not change ownership of a federal student loan, and the underlying terms and conditions of the loan remain in place. Nevertheless, loan servicing transfers have historically been disruptive for borrowers. The Consumer Financial Protection Bureau noted in a 2015 report that servicing changes can result in lost payments, surprise late fees, paperwork processing problems, and missing records, all of which can result in borrower confusion and even cause some borrowers to fall behind on their payments.
Consumer advocates have already been raising the alarm about recent loan servicer transfers. Borrowers whose loans were transferred to MOHELA reported major paperwork processing delays and long call hold times, although anecdotal reports indicate that these issues are improving. Meanwhile, Nelnet recently announced layoffs in its student loan servicing division, even as the company acquires more accounts from Great Lakes Higher Education and millions of borrowers are expected to resume repayment as the federal student loan pause ends this summer.
Biden Administration Announces New Student Loan Servicing Contracts
The Biden administration announced earlier this week that the Education Department awarded new student loan servicing contracts to five companies. Four of these companies — MOHELA, Nelnet, EdFinancial, and Maximus Education (which operates Aidvantage) are existing student loan servicers. A fifth company, Central Research, Inc., is new to the department’s loan servicing space. This means that some borrowers may see their federal student loan accounts transferred to this new company.
New Contracts Are Part Of Larger Student Loan Servicing Overhaul
The new contracts are a prelude to a more sweeping student loan servicing overhaul that has been in the works for years, across multiple administrations. The end goal of the overhaul is to have StudentAid.gov, the Education Department’s federal student aid website, be the main portal for borrowers to manage their federal student loan accounts, without having to use their loan servicer’s website.
Currently, borrowers can already use StudentAid.gov for Direct loan consolidation, income-driven repayment recertification, and submitting applications for student loan forgiveness through Borrower Defense to Repayment and Public Service Loan Forgiveness. Officials hope to further centralize and streamline more student loan operations.
“Ultimately, the new loan servicing environment will provide all federally managed student loan borrowers with complete account management capabilities on StudentAid.gov; reduce disruptions from account transfers; and increase servicer accountability through clear, service-level metrics,” said the Education Department in a statement.
