What Is a Student Loan Servicer?

Student Loan Servicers Explained

A recent college grad sets up his student loan servicer account.
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A student loan servicer is a company that manages your federal student loans. It is responsible for all loan-related administration, including responding to questions, processing payments, and making changes to your repayment plan.

Learn how student loan servicers work and how the Department of Education’s (DOE) changes to the process will affect you and your federal student loans.

Definition and Examples of Student Loan Servicers 

A student loan servicer is a company that the Department of Education uses to handle repayment, billing, and other aspects of your federal student loans. The DOE assigns each borrower to a servicer once the borrower’s loan is disbursed. 

There are currently several different federal loan servicers:

  • FedLoan Servicing
  • Great Lakes Educational Loan Services, Inc.
  • HESC/Edfinancial
  • Missouri Higher Education Loan Authority (MOHELA)
  • Aidvantage
  • Nelnet
  • OLSA Servicing
  • ECSI

To service loans that have gone into default, the DOE uses Default Resolution Group.

Several loan servicers have stopped or will soon stop servicing federal student loans, including Navient. In January 2022, Attorney General Josh Shapiro announced that Navient agreed to a $1.85 billion settlement to resolve claims of abusive loan servicing practices. The deal cancels the loan debt of 66,000 borrowers and will give payments of about $260 apiece to 350,000 others.

How Do Student Loan Servicers Work? 

A student loan servicer manages details big and small related to your federal student loans. Because federal loans are complex products with a variety of repayment options, monthly payment amounts, and loan-forgiveness criteria, a servicer performs many tasks throughout the life of a federal student loan. Tasks include: 

  • Tracking student loans that borrowers have received 
  • Answering borrower questions and providing customer service
  • Collecting payments 
  • Maintaining records of borrowed funds and repayment progress 
  • Processing requests for changes to repayment plans 
  • Processing requests for deferment or forbearance 
  • Working with borrowers on options to avoid default
  • Providing 1098-E tax forms if you paid at least $600 in student loan interest during the year

Under the current system, the DOE assigns a loan to a servicer, which then contacts the borrower to begin the loan administration process. Borrowers may also contact the Federal Student Aid Information Center (FSAIC) at 1-800-433-3243 to find out who their servicer is.

Servicers can be reassigned at any time, and one borrower may have multiple servicers. If your federal student loans are transferred from one servicer to another, your loans will still be owed.

How Are Loan Servicers Paid?

Borrowers do not pay fees to servicers directly. Instead, the DOE pays loan servicers based on the terms of contracts—the specifics of which have not been disclosed. 

The Department of Education spent $883 million for student loan administration in 2020, and was expected to pay more than a billion in 2021. However, the transition to Next Gen—the DOE’s initiative to streamline the servicing process—is expected to result in reduced outlays on loan servicing. The DOE was able to cut its 2020 loan servicing budget by nearly $300 million as a result of the Next Gen program. 

Don’t ever pay a fee for assistance managing your student loan, as loan servicers are responsible for providing free help to borrowers. 

Changes to Student Loan Servicing

In June 2020, the DOE announced it would overhaul its loan servicing program to streamline the servicing process—a plan that initially launched in 2017. Known as the Next Gen project (short for Next Gen Business Process Operations), the DOE is implementing the following changes under the program:

  • There will be one website through which borrowers access their servicer account, rather than separate websites for each servicer
  • New contracts with servicers will incentivize successful account management and provide consequences for unmet contractual requirements
  • Contracts with five new loan servicers
  • Contracts for Granite State and Navient continued through December 2021
  • Contracts for Great Lakes, Nelnet, HESC/Edfinancial, MOHELA, and OSLA Servicing will be extended through December 2023
  • Contracts for FedLoan Servicing will be extended through December 2022

Borrowers will receive advance notice of any change to their loan servicer. The DOE notes that servicer changes will be preceded by a multiplatform campaign (emails, social media, etc.) to alert you of what to expect with the upcoming changes

The five servicers participating in the new student-loan servicing platform will be: 

  • Edfinancial Services LLC
  • F.H. Cann & Associates LLC
  • MAXIMUS Federal Services Inc.
  • MOHELA
  • Texas Guaranteed Student Loan Corporation (Trellis Company)

The DOE will phase in these new servicers over time, with contracts for existing servicers extended enough to provide time for the transition. After the transition, borrowers will experience more streamlined service. They’ll be able to call just one number to connect with their servicer, and servicers will be trained to handle student loans, FAFSA questions, grants, and other aspects of borrowing beyond loans. 

Key Takeaways

  • The DOE contracts with student loan servicers to manage federal student loans.
  • Student loan servicers process payments, answer borrower questions, and manage requests for payment plan changes, deferment, or forbearance
  • There are several different federal student loan servicers, although some companies are ending their contracts and transferring their contracted loans to new servicers. 
  • Under the Next Gen System, the DOE has entered into contracts with five new loan servicers to provide a more streamlined experience for borrowers.
  • Borrowers will receive advance notice if their loan servicer changes. 

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