By now, you may have seen the announcement from FedLoan Servicing or its official corporate name – the Pennsylvania Higher Education Assistance Agency, that they will not renew their contract with the United States Department of Education. FedLoan Servicing currently acts as the servicer for roughly 8.5 million borrowers of federal student loans – to put that in perspective, that is around 20% of all federal student loan borrowers.
In a press release on July 8, FedLoan Servicing said that it would not accept an extension of its 12-year old federal student loan servicing contract beyond what is needed to ensure a smooth transition for borrowers. Their current contract is set to expire on December 14, 2021. FedLoan Servicing cited increasingly complex loan programs and rising costs to service those programs as reasons for stepping back from the responsibility of servicing federal student loans.
We realize this news is especially alarming to borrowers currently on track for the Public Service Loan Forgiveness program because FedLoan Serving was the servicer appointed by the Department of Education to oversee the program.
Watch the video about the FedLoans Servicing Announcement or keep reading:
Our team is here to help. Here is what we know:
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This is not the first time a servicing contract with the Department of Education was not renewed.
- In October of 2020, the Utah Higher Education Assistance Authority abruptly terminated its contract to service federal student loans. The plan was for the loans that they were responsible for, ironically enough, to be transferred to FedLoan Servicing.
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There were already plans by the Department of Education to overhaul their servicing contracts.
- In June of 2020, there were many headlines around new servicing contracts, and much attention was given to the fact that servicers such as Great Lakes and NelNet were not on the list to receive new contracts. The changes were not effective immediately. The COO of Federal Student Aid suggested that they’ve got to put the right technology and training in place first.
- In my opinion, this is a bit of good news that there were already anticipated changes to the servicing arm of the Federal Student Aid system.
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And finally, we know that the Administrative Forbearance is currently set to expire on September 30, 2021, with payments and interest accumulation resuming in October for the first time in over a year.
This leads us to what we hope to learn in the coming weeks:
- Will that administrative forbearance be extended once again? As of this recording, it has not been. However, there is increasing pressure on the Biden Administration to do so. Pressure from other democratic lawmakers and now the added pressure that one of the largest servicers will not be renewing their contract amid payments and interest resuming.
- We also don’t know who will take over for FedLoan Servicing in either servicing their book of loans or administering the Public Service Loan Forgiveness Program.
Until we get more answers, here are a few things you can do to be prepared for any changes:
- Download a record of your payment history.
- If pursuing Public Service Loan Forgiveness, submit an Employment Certification Form to have an updated qualifying payment total.
- Verify and update all of your contact information with your current servicer.
- And finally, monitor your account for auto-debits or upcoming payments – we wouldn’t want your payment history or your credit to be affected by the upcoming changes.
Stay tuned for more developments around the FedLoan Servicing story and the Administrative Forbearance. Continue to lean on our team at SDT as a resource.
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