Earlier this week, Navient announced that they would like to end their federal student loan servicing contract with the U.S. Department of Education. Navient is the third servicer this year to seek to end their federal student loan servicing contract. While the Navient contract will likely conclude before the end of the year (pending government approval), the other two departing federal loan servicers, FedLoans and Granite State said they would not renew their contracts in December.
If you have a federal Direct Loan or a federally-owned student loan, the end of these servicing contracts could impact you.
What is a Federal Student Loan Servicer?
While your federal student loan lender is the federal government, the federal government uses federal student loan servicers to help manage the repayment of your loan. Your loan servicer is the company that will handle billing, and they are the company you would contact if you have issues regarding the repayment of your loan. They are also the ones who will likely contact you by phone, email, or mail, to provide you with information or details about your account. You will also go to their website to log into your account portal to access your account information online.
At one point, there were more than ten companies operating as federal student loan servicers for the Direct Loan, and U.S. Department of Education-owned loans, and overtime that number has decreased. Servicers like Cornerstone, Aspire, and Vermont Student Assistance Corps (VSAC) were the first to end their servicing contracts with US Department of Education. When servicing contracts end, the U.S. Department of Education transfers accounts from one servicer to another to take over the servicing.
Navient announced its intentions to end their contract, on the tail end of the news of FedLoans’, and Granite States’ departure. This change would require the U.S. Department of Education to transfer about 16 million borrowers to other servicers who will continue to service them on behalf of the federal government. This isn’t the first time this has happened, so there is some precedent here.
What Happens if my Servicer is Ending their Servicing Contract?
Any time a servicer discontinues a servicing contract, the U.S. Department of Education will be tasked to transfer loans to other student loan servicers. If your loan is one among the affected, your loan will be transferred, and you will receive correspondence from either your former and/or new loan servicer regarding the transfer.
You will receive information to let you know:
- The official date your loan will be transferred
- Information on how to access your web account
- Information regarding auto-debit
- How to contact your new loan servicer by phone and mail
If you do not receive this information, it’s important to be proactive. Log into your MyStudentAid account on StudentAid.gov to determine who your current servicer is, so that you may contact them.
Here is what you need to know if your loan is being transferred to a new federal student loan servicer.
Locate Your Loan Information
If you have a federal Direct Loan, your loan servicer may be one of these companies that is ending their servicing contract. To determine who your federal student loan servicer is, you should log into MyStudentAid.gov account.
If you already know your servicer is Navient, FedLoans, or Granite State, you should take steps to know the status of your loan.
Download/Save Your Latest Statement
It’s best to download an official statement of where you loan stands. Identify your principal balance, interest rate, and any outstanding interest. You should take note of your payment plan and your monthly payment. If your loan is transferred, make sure the information still matches up.
Borrowers on Auto-debit
Student loan debt relief offered due to the pandemic will require servicers to reach out to you regarding your auto-debit and autopayment status. Just stay tuned and make sure you read the correspondence you receive from your servicer. You may need to make sure you don’t fall behind on your payments, based on the assumption that they would continue as normal.
Borrowers Seeking Forgiveness: Identify Your Qualifying Payment Status
If you are seeking forgiveness within one the income-driven repayment plans or through Public Service Loan Forgiveness, you should make sure your qualifying payments are accurately transferred to your new servicer. This is especially important for borrowers seeking Public Service Loan Forgiveness, since FedLoans was the specialty loan servicer for this specific forgiveness program. Chances are, if you submitted an Employment Certification Form, your loan was transferred to FedLoans for servicing. If there are issues after the transfer, reach out to your new servicer and provide supporting documentation.
Read Correspondence from Your Servicer
It’s important to read all correspondence and answer phone calls from your student loan servicer. They may be reaching out to provide you with useful information or to discuss issues with your account. It’s not uncommon for correspondence to be ignored, but if there’s ever a time to keep up with your student loan account, now is the time! There is a lot going on, from student loan debt relief offered because of the COVID-19 pandemic, to loans in an administrative forbearance, as well as loans reentering repayment next year. You need to stay on top of your account.
Frequently Asked Questions
Let’s go over some common questions regarding student loans during the COVID-19 pandemic.
Why is my Direct Loan not serviced by the federal government if they’re my lender?
Federal student loans require many touchpoints with the borrower, and with millions of federal student loan borrowers, the federal government opted to utilize servicers to help facilitate the repayment of federal student loans, more specifically, Direct Loans. It’s not an uncommon practice for lenders, in any area of lending, to use servicers who are specialized in the customer service aspect of collecting on the loan.
Federal student loan servicing on behalf of the federal government has had an interesting history. In the past, the U.S. Department of Education utilized one servicer for all non-defaulted loans, and then decided to award contracts to multiple servicers to help provide better customer service to borrowers. Both methods had positive outcomes as well as challenges delivering the appropriate customer service to borrowers.
Why are Servicers Ending Their Contract with the Federal Government?
Federal student loan servicers sign contracts to service federal student loans for which the lender is the U.S. Department of Education. Essentially, this means Direct Loans. When those contracts are up for expiration, both the federal government and the servicer may choose not to renew their contract.
If a servicer is in the middle of the contract, there are ways that they can request to terminate their contract and provide the U.S. Department of Education with a plan to terminate. The Federal government also can terminate a contract for cause, such as not meeting the contractual requirements as required by the contract.
FedLoans and Granite State
FedLoans and Granite State have decided not to renew their contracts at the time of expiration, which is in December of 2021. They are not terminating their contract early, but the loans they are servicing will need to be transferred to other servicers who will continue working on behalf of the U.S. Department of Education.
Navient Discontinuing Contract with the U.S. Department of Education
Navient at this point has requested to terminate their contract before the end of their contractual expiry date. To accomplish this, they are required to submit a plan and receive approval from the U.S. Department of Education. In their plan, they have noted that their loan portfolio will be transferred to Maximus, another federal student loan servicer. They will be required to continue working with the U.S. Department of Education to successfully transfer the loans based on their submitted agreement, that is, if the agreement is approved.
The Navient plan is relatively interesting because they are requesting to transfer their loans to Maximus. While they are contracted to work with the U.S. Department of Education, they have been primarily servicing defaulted student loans. Defaulted student loans have different contractual requirements to follow than servicers working with non-defaulted student loans. The plan submitted by Navient likely addresses this issue and explain how the transfer to Maximus will not interrupt the successful servicing of these student loans.
I Lost Track of My Servicer, How Can I Find My Servicer?
To find out who your federal student loan servicer is you can log into your MyStudentAid account on StudentAid.gov. You can identify the current servicer of your existing federal student loans in your account.