What You Need to Know About FedLoan Servicing
FedLoan Servicing is one of the largest providers of student loans in the United States, servicing loans for the U.S. Department of Education. FedLoan, one of the loan servicers established by the Pennsylvania Higher Education Assistance Agency (PHEAA), was a major servicer for loan repayment: processing payments, managing customer service issues, and helping borrowers through loan forgiveness programs like Public Service Loan Forgiveness (PSLF).
FedLoan Servicing is no longer around — but its legacy lives on in the lives of affected student loan borrowers and in the larger financial aid landscape. In this article, we are going to describe FedLoan Servicing in detail, including what it does, a little of its controversy, and what borrowers should know about moving onto new loan servicers.
The Role of FedLoan Servicing
FedLoan Servicing was tasked with servicing federal student loans, assisting borrowers throughout the loan repayment journey. Your main responsibilities will include:
- Loan Disbursement and Management – The process of disbursing federal student loan money to borrowers and keeping up with loan balances.
- Payment Processing – Monthly loan payment acceptance and processing from borrowers.
- Loan forgiveness help – Helping borrowers qualify for loan forgiveness programs, especially PSLF.
- Customer Support – Assisting with repayment options, deferment, forbearance and loan consolidation.
- Loan Servicing Transfers — Handling borrower accounts until loans were transferred to new servicers after the company’s contract expired.
The Public Service Loan Forgiveness (PSLF) program
FedLoan Servicing’s chief role was managing the PSLF program. This program provides loan forgiveness for eligible borrowers with qualifying public service jobs after making 120 qualifying monthly paymentsunder an income-driven repayment (IDR) plan.
To qualify, borrowers had to:
- Be a full-time employee of a public or non-profit employer.
- Make consistent, monthly payments under a qualifying repayment plan.
- File an annual Employment Certification Form (ECF) to monitor progress toward PSLF.
The only servicer designed to process PSLF was FedLoan Servicing, so it occupies a pivotal position in the student loan ecosystem.
Problems and Controversies About FedLoan Servicing
Even as it helped process an essential public service, FedLoan Servicing drew complaints and legal challenges. Borrowers and advocacy groups have condemned the servicer for:
- Processing Errors — Many borrowers complained of incorrectly applied payments, incorrect loan balances, and errors processing PSLF applications.
- Information Deficiency – Many borrowers were unable to access accurate information about payments toward Student Loan Forgiveness and/or PSLF eligibility, resulting in disqualifications from having their debt forgiven due to administrative mistakes.
- Delays in Processing PSLF Applications — Applicants sometimes waited for long periods for a determination about loan forgiveness, and some found out late they didn’t qualify because of misinformation.
- Customer Service Complaints – Many borrowers complained about unhelpfulness and unresponsiveness from customer service representatives.
These problems led to FedLoan Servicing being heavily scrutinized by lawmakers and consumer protection groups.
The End of FedLoan Servicing
The Pennsylvania Higher Education Assistance Agency (PHEAA) announced in 2021 that it would not renew a contract with the U.S. Department of Education. This decision effectively ended FedLoan Servicing’s involvement in servicing federal student loans.
As a result, millions of borrowers had their loans handed off to other loan servicers, such as:
-
- MOHELA (Missouri Higher Education Loan Authority) – [Took over the PSLF program responsibilities]
- Aidvantage (previously Navient’s federal loan division)
- Edfinancial Services
- Nelnet
- XXX (Great Lakes Educational Loan Services)
Borrowers received transfer notices informing them that their loans would be transferred to new servicers, and the transition process is supposed to minimally introduce disruption to loan repayment and PSLF tracking.
What Borrowers Should Do Now That FedLoan Servicing Is Leaving
If you were a borrower managed by FedLoan, there are a couple of things to consider ensuring a seamless transition:
- Confirm Your Loan Servicer – Go to Studentaid. gov to verify your new loan servicer and to provide your contact information.
- Review Loan Records — Download and save past payment records, loan statements, and PSLF employment certifications from FedLoan prior to the transition.
- Create A New Account With Your New Servicer – After your loan transfers, set up an account with your new servicer and check your loan information.
- Keep Paying – Continue making payments on your loans; if you have auto-debit, check to make sure it hasn’t been turned off.
- Check PSLF Status — If you’d been working toward PSLF, make sure your new servicer has accurate records of your qualifying payments and employment history.
This data as of October 2023.
As FedLoan Servicing ceases business, other loan servicers have assumed its duties. Here’s what borrowers should know about these servicers:
- MOHELA – The only servicer for the PSLF program; processes applications and counts qualifying payments.
- Name of Servicer: Aidvantage – Handles former Navient federal student loans and provides general loan servicing.
- Edfinancial and Nelnet — Offer standard loan servicing, such as enrolling borrowers in income-driven repayment (IDR) plans and processing payments.
- Great Lakes – A longtime loan servicer that handles accounts for borrowers and helps with repayment plans.
Working Back from the Future of Student Loan Servicing
The student loan servicing world is changing with the exit of FedLoan Servicing. The education department is moving to overhaul the federal student loan system to better serve American borrowers by reforming loan servicing and enhancing borrower protections. These reforms include:
- Improving PSLF – Streamlining the PSLF application process and enhancing borrower communication.
- Increased Monitoring of Loan Servicers – Increased regulation to ensure servicers are providing accurate and helpful information.
- New Loan Forgiveness Initiatives – Broadening access to and streamlining processes for borrowers to achieve forgiveness programs.
Conclusion
FedLoan Servicing was a major player in student loan servicing, especially among borrowers pursuing Public Service Loan Forgiveness. But its time on the job has been marred by customer service problems, administrative mistakes and processing delays that have left many borrowers exasperated. Its exit has meant new servicers took over loan servicing responsibilities, which has offered opportunities for improvement (and challenges as well) for the student loan system.
Borrowers, on the other hand, simply need to be vigilant, meticulously document this process and the many details that go along with it and take an active role in managing their loans with any new servicers to ensure an effortless transition to repayment. The future of student loan servicing in the U.S. will be influenced by policy changes aimed at improving transparency, borrower support, and loan forgiveness programs as the federal student loan system continues to develop.
