Plans by the Department of Education to consolidate federal student loan servicing are moving forward, meaning it’s likely you eventually will get a new servicer for your federal student loan, though you may not even know who it is because servicers will not be operating under their own brands in the new system. Although this change won’t happen until after 2020, it’s useful to understand now what’s changing.
Most of the more than 68 million federal student loan borrowers will see their loan servicer altered as the department consolidates the repayment process and contracts with new companies, in part to improve customer service. Note that this change won’t affect student loan terms or interest rates.
The Federal Student Aid (FSA) initiative, known as Next Gen, short for Next Generation Financial Services Environment, was first announced in 2017. It involves a switch to a new, centralized loan servicing platform, so you’re also likely to get a different online or mobile service to manage your loans.
Next Gen is intended to streamline the process of securing and repaying federal student loans. As part of these efforts, the Department of Education in June announced contracts with five student loan servicers: EdFinancial Services, F.H. Cann & Associates, MAXIMUS Federal Services, Missouri Higher Education Loan Authority (MOHELA), and Texas Guaranteed Student Loan Corp., or Trellis Company. (More about these companies further down in this article.)
But the changes aren’t happening immediately. The Department of Education said in early August that it had extended student loan servicing contracts with the nine existing loan servicers. Borrowers will interact with these servicers in their existing online environments until those contracts end. After that, you may get a new servicer with whom you’ll work through the Next Gen platform. Two existing servicers, MOHELA and EdFinancial, received Next Gen contracts, so they will be around after their extended contracts finish.
Here is the list of loan servicing contract end dates.
|Existing Federal Student Loan Servicing Companies|
|Continuing through 2021||
Continuing through March 2022
|FedLoan Servicing (PHEAA)||CornerStone
|Great Lakes||Granite Stat-GSMR
Most borrowers will see their loan servicer and platform change as the Department of Education contracts with new companies. However, that will not happen this year, as it will take time for the new servicers to get the consolidated platform up and running.
When your servicer changes, you'll be provided with ample advance notice, according to the Department of Education. Because the new servicers will all use the same platform, allowing borrowers to seamlessly repay through StudentAid.gov, it won't matter as much who your servicer is. In fact, you may not even know which company you are actually dealing with because the different contracted companies will not use their own branding.
Profiles of New Student Loan Servicers
The five Next Gen student loan servicers are:
- EdFinancial Services LLC: EdFinancial Services, one of two existing servicers continuing with Next Gen, is a Better Business Bureau (BBB)-accredited business with an A+ rating. It has been in business for 24 years and has 432 employees. No complaints are listed in the Consumer Financial Protection Bureau (CFPB) complaint database; however, 37 are listed on the BBB site.
- F.H. Cann & Associates LLC: This debt collection service is also BBB-accredited, with an A+ rating. It has been in business for 21 years and has 425 employees. There are no complaints about it in the CFPB database, but 88 complaints appear on its BBB webpage.
- MAXIMUS Federal Services Inc. MAXIMUS Federal Services is not BBB-accredited. It is currently a servicer for defaulted student loans.
- Missouri Higher Education Loan Authority (MOHELA): MOHELA, the second of two existing servicers awarded a Next Gen contract, is a BBB-accredited business with an A+ rating. It has been in business for 38 years. There is one complaint about it in the CFPB database and 38 complaints are shown on its BBB webpage.
- Texas Guaranteed Student Loan Corp.: Texas Guaranteed Student Loan Corp. is also known as Trellis Company. It is not BBB-accredited, but it has an A+ rating with the BBB. It has been in business for 41 years, has three complaints in the CFPB database and 44 listed on its BBB webpage.
What are Federal Student Loan Servicers?
Student loan servicers are responsible for collecting loan payments, providing customer service, and performing other administrative tasks.
Currently, there are nine different loan servicers managing the federal student loan repayment process and they manage four different platforms. This can make loan administration complicated and time-consuming for those whose loans have been assigned to multiple servicers.
Next Gen reportedly will hold the new vendors to strict performance standards, and consumers should be able to resolve concerns or get questions answered with just one phone call or email.
How Does Student Loan Servicing Work?
According to the Consumer Financial Protection Bureau, federal student loan servicers perform the day-to-day work of managing loans. Some of their tasks include loan disbursement, payment processing, repayment plan changes, and maintaining loan records.
FSA contracts with these outside entities to provide servicing for federal student loans. A borrower who needs to sign up for income-driven repayment, put loans into deferment or forbearance, or simply send in a monthly check or direct deposit would complete all these steps directly with the loan servicer managing their loan.
With multiple loan servicers currently managing loans via different platforms, borrowers with more than one servicer might need to contact several different companies or sign in to different online websites to make changes to their payment information or alter their payment plan.
Under Next Gen, this will no longer be the case, as there will be one integrated loan processing platform.
Borrowers cannot change their loan servicer as part of the consolidation plan, but instead will be assigned to one by the Department of Education. If you don't like your new servicer, your only option is to consolidate your loans or refinance with a private lender.
Why Might Federal Loan Servicers Change?
With Next Gen setting the goal of streamlining student loan repayment, the Department of Education has indicated a desire to contract with student loan servicers that can comply with new performance standards. The five new servicers signed contracts that include 41 "objective" requirements they will be held to.
Yet the CFPB has indicated that shifting servicers has created confusion in the past, while the Department of Education’s own inspector general has indicated in a report that the DOE has experienced problems holding servicers to high standards.
Alternatives for Borrowers
As a borrower, there's not much you can do if or when your federal loan servicer changes, because you're assigned a loan servicer. The good news is, regardless of whether you’re given a new servicer or not, every borrower will be using the same, unified loan portal. And even if your loan servicer changes, the terms of your loans will remain the same.
In case you’re considering refinancing your student loans with a private lender because of a change in your servicer, keep in mind that would mean giving up possible access to loan forgiveness, as well as to income-driven payment plans and deferment options. Forbearance options are more limited. And you can't change your payment plan as you can with federal loans.
Because federal student loans provide important borrower protections, it likely wouldn't make sense to refinance simply to switch your servicer, although that is an option if you're confident you won't use any of the borrower benefits federal loans provide and you'd prefer more choice about who manages your loans.
- A Department of Education initiative called Next Gen is expected to result in a consolidation of federal student loan servicers by 2022
- Your federal student loan servicers are likely to change, but not this year
- The program will unify federal student loan repayment and interaction on a single platform
- Your loan terms and conditions will remain the same, even if your loan servicer changes