Yesterday, Navient NAVI announced that it plans on leaving the federal student loan servicing system, sending shockwaves through the loan servicing space. Nearly 6 million student loan borrower accounts currently handled by Navient will need to be transferred to a new loan servicer in the coming months.
Navient is just the latest major national student loan servicer to decide not to renew its contract with the U.S. Department of Education. In July, FedLoan Servicing — the Direct loan servicing wing of the Pennsylvania Higher Education Assistance Agency (PHEAA) — also announced it would not be renewing its loan servicing contract. FedLoan handles another 8.5 million borrower accounts, many of whom are on track for the Public Service Loan Forgiveness program, and the Department will need to transfer these accounts to a new loan servicer, as well. Two smaller loan servicers — Granite State Management and Resources earlier this year, and Cornerstone last year — announced departures, too.
According to the Consumer Financial Protection Bureau, student loan servicing changes can be disruptive for borrowers, and can sometimes lead to problems. Here’s what you need to know.
Navient and PHEAA service many different types of student loans, and it is important to understand that only certain student loans will be impacted by the servicing changes. Specifically, the servicing changes only impact federal student loans held by the U.S. Department of Education. This includes the following:
Navient services many private student loans, as well as FFEL loans that are not owned by the government. These loans should not be impacted by the servicing changes.
On the other hand, FedLoan Servicing’s entire portfolio is government-held federal student loans, so if FedLoan Servicing is your servicer, you will be impacted by the changes. However, PHEAA also operates American Education Services (AES), which services private student loans and FFEL loans that are not owned by the government. These loans should remain unaffected.
In its announcement yesterday, Navient indicated that it has reached an agreement with another company called Maximus, which intends to take over the 6 million Navient student loan accounts. Maximus is another contracted servicer for the Department of Education, primarily handling its defaulted federal student loan portfolio. Navient’s agreement with Maximus is not final, however, and the Department must give final approval for it to go forward.
In contrast, FedLoan’s departure from federal student loan servicing did not include a transfer agreement with another company. As a result, we don’t yet know what company (or companies) will take over FedLoan’s student loan borrower accounts. The Department is reportedly working on bridge contracts with other student loan servicers — short term arrangements to take over FedLoan’s accounts — but nothing has been finalized at this time.
No entity — not Navient, Maximus, FedLoan, or the Department of Education — has announced a timeline for the servicing transfers. So it is unclear exactly when the transfers will take place.
That said, FedLoan’s contract with the Department ends in December, and student loan payments are scheduled to resume after January 31, 2022, following President Biden’s final extension of the student loan payment pause. There is speculation that the transfers would have to occur by then — but nothing is set in stone quite yet.
A federal student loan servicer is a contractor operating on behalf of the federal government. Ownership of your student loans is not changing, and neither are the underlying terms and conditions. Borrowers will be able to access the same federal student loan programs — such as income-driven repayment plans, Public Service Loan Forgiveness, and deferment and forbearance options — regardless of who services their federal student loans.
To minimize the chances that a servicing transfer will be disruptive or cause problems, borrowers can take steps now to protect themselves: