By Justin Green
If you are like most young Americans, then you probably have federal student loans. As a borrower, you are assigned to a loan servicer who handles the payments, reporting, and customer service associated with the day to day operations of your federal student loans. Currently, there are nine servicers across multiple platforms, which leads to inconsistencies across servicers and confusion among borrowers. Each servicer operates independent from the rest, causing a different experience for the borrower based on which servicer they are working with.
In an effort to streamline the process and provide consistent service to borrowers, the U.S. Department of Education’s (USDOE) Office of Federal Student Aid has agreed to a contract with only five companies starting December 14, 2020, and they will all operate on a single platform. It appears that the four remaining current servicers will be on the outside looking in. These are NelNet, Great Lakes, FedLoan and Navient.
So what is the big deal?
This might be a good change in the long term, but there are bound to be issues in the short term due to the transition. If the past is an indicator, then there is potential for errors to occur and result in a disruption in customer service during the transition.
The difficulty of a transition could be amplified by the current pandemic as most borrowers are in an administrative forbearance and won’t be resuming payments until later this year. There is a significant administrative burden on the loan servicers right now and ensuring that your accounts are properly handled prior to the transition and after is extremely important. There isn’t much incentive for the loan servicers basically being removed from the loan program to put any effort into the transition and the new companies taking over have never dealt with the volume of student loan they will be processing. It may be a recipe for disaster.
What can you do to protect yourself?
Each servicing company has different rules and policies, and this can cause a lot of confusion among borrowers who are used to the way things were done with their old servicer. It is important to understand the changes between the old servicer and the new servicer to prevent any avoidable mistakes on the borrower’s end. Here are some suggestions:
Document all communications with your current servicer and export all of your files from your current service website if you will be transitioning to a new servicer. If possible, download your payment history and save it.
You can also download the .txt file from studentaid.gov website, this contains ALL of the information on your loans. You can access it by logging into your account, clicking on your name in the top right and selecting “my aid”. Below that you can select “download my aid data”.
Confirm that your current payment plan accurately transfers over to the new company servicing the loans. You do not want to be surprised by a higher monthly payment because they applied the wrong payment plan to your loans.
Were you paying your loans via AutoPay? Make sure that information transfers over. If not, it will be very easy to miss a payment and then not realize it. A missed payment could affect your plan for forgiveness, or add a ding to your credit report.
If you’re on a Public Service Loan Forgiveness plan, then make sure your qualified payments are correctly allocated to your account before the transition. The best way to do this is by submitting an employment certification form in October or November 2020 so that your information is as close to up to date as possible before the transition. Also, save all past employment certification forms and responses.
Not sure how to fill out the Employment Certification Form? Check out StudentAid.gov .
The future of student loans
This may be a good change moving forward that allows the USDOE to hold their servicers more accountable and increase consistent service across the five companies while using one streamlined platform. The current structure is very confusing, and has many inconsistencies. But it could be very messy in the short term and it’s crucial that you protect yourself in the case of any errors.
There is also potential for these changes to never occur. There is likely to be lawsuits by the current servicers over the decision which could delay it past the November election. It’s possible that a Democratic president, presumably Joe Biden, would reverse the decision before it went into effect or address student loans in a completely different way. There also is a possibility that Congress extends the CARES ACT provisions. These possibilities are speculation for now, and we will keep you updated as we learn more.
Justin Green, MSPFP, CFP®
Justin is a financial planner at Four Ponds Financial Planning. His areas of focus include financial planning for young professionals, student loan guidance and retirement advice. He earned his Bachelor of Science degree at State University of New York at Cortland and his Master of Science in Personal Financial Planning from Kansas State University. He is a member of the Financial Planning Association (FPA) and Garrett Planning Network. He volunteers as a member of the FPA of Massachusetts NexGen Committee.