Education Ministry Calls on 10 Million Student Loan Borrowers to ‘Prepare for Service Agent Change’ Now, Key Details Missing
The US Department of Education has started alerting millions of student loan borrowers of the major changes in loan servicing that will occur in the coming months, and urges them to take action now to prepare. But his advice is incomplete.
Last month, two of the ministry’s main contracted student loan managers – FedLoan Servicing (a branch of the Pennsylvania Higher Education Assistance Agency, or PHEAA) and Granite State Management & Resources – told the ministry they would not renew their loans. contracts at the end of the year, thus terminating their operations of managing student loans on behalf of the federal government. As a result, the Ministry of Education will need to find new loan managers for around 10 million borrowers and initiate transfers to these new managers in the coming months.
The Ministry has started to notify borrowers of upcoming changes. In emails sent to borrowers whose accounts are with FedLoan Servicing, the ministry warned borrowers to “prepare for the change in your loan manager.” The department explained, âFedLoan Servicing has announced that it will stop managing federal student loans. Over the next year, your loans will be transferred to another manager. Until this change occurs, FedLoan will remain your loan manager. The Department noted that the service changes do not affect the terms of the underlying loans or a borrower’s eligibility for student loan waiver, discharge and repayment programs.
The Ministry urged borrowers to update their contact details. âWrong contact information could cause you to miss important updates on your new server and on how to prepare to restart payments,â the emails said. The emails also informed borrowers to prepare for repayment, but provided ambiguous information for borrowers who had paid off their student loans through automatic debit enrollment, only stating that borrowers should “look at FedLoan Servicing information and your new loan service to manage your auto-debit. âTypically, borrowers must re-enroll in direct debit programs with a new service agent after a transfer.
FedLoan Servicing also posted an important post on its website, advising borrowers of the upcoming changes. âIn the coming months, we will be working with Federal Student Aid (FSA) to make a smooth transition from your loans to another provider,â the post read. âFedLoan Servicing will continue to manage all loans until they are transferred to another manager designated by the FSA. FedLoan asked borrowers to follow updates through a dedicated page on the Department of Education website.
The service of transfers initiated by the Department of Education and other student loan lenders has always been disruptive and, in some cases, harmful and costly for borrowers. The Consumer Financial Protection Bureau noted in a 2015 report that managing transfers can lead to lost or missed payments, unexpected late fees, and lost records. Borrowers on track for Public Service Loan Remission (PSLF) may be particularly at risk at this time, given FedLoan Servicing’s unique role in administering the program; many of these borrowers are involved in ongoing disputes with FedLoan over payments that are not counted in the PSLF, in some cases due to previous loan service transfers that have resulted in the loss or scrambling of records.
Recent communications from the Ministry regarding upcoming service transfers have not warned borrowers of the possibility of losing records or of payment processing irregularities. Nonetheless, borrowers should protect themselves by downloading and maintaining all of their student loan records (including payment histories and correspondence) and by monitoring their credit reports. Borrowers on track for the PSLF may want to take additional steps, such as escalating disputes and recertifying their jobs if their loans are already paid off by FedLoan.
The Education Department has not announced a specific timeline for handling transfers, nor has it indicated which new student loan managers will take over the accounts currently managed by FedLoan Servicing and Granite State Management. Meanwhile, the current moratorium on student loan payments is set to expire after September 30, forcing borrowers to resume their payments in October. Advocates have warned that the confluence of the two events would be a disaster for borrowers. The Biden administration is reportedly still considering extending the student loan hiatus further.
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