Federal loans can help students get the best education possible, here’s what you need to know about all of them.
Introduction
Because for millions of students in America, getting a college degree is possible only with help from taxpayers. FedLoan, a servicer run by the Pennsylvania Higher Education Assistance Agency (PHEAA), was one of the biggest names in student loan servicing. Though the program itself came to a close in 2022, these borrowers need to understand FedLoan — and the broader federal student loan system — for options in their repayments going forward.
This article covers what FedLoan is, its function in the student loan servicing industry, the transition to another loan servicer, and how borrowers can stay on top of their federal student loans.
What Was FedLoan?
FedLoan was one of the biggest federal student loan servicers in the United States, and it was created by PHEAA in 2009 to service loans for the U.S. Department of Education. Its main duties included the following:
- Managing borrower accounts
- Processing payments
- Helping to create repayment plans
- Work on the Public Service Loan Forgiveness (PSLF) application
- Offering services for consolidating loans
FedLoan had serviced millions of federal student loans at its peak. But it was criticized for shoddy customer service, processing delays and mismanaged PSLF applications.
The End of FedLoan Servicing
In 2021, FedLoan said it would not renew its contract with the Department of Education. That decision brought millions of borrowers over to new loan servicers. As of 2022, all loans once administered by FedLoan have moved to new servicers, such as:
- MOHELA (Missouri Higher Education Loan Authority): What you need to know — Took over the accounts for Public Service Loan Forgiveness (PSLF).
- Edfinancial: For many borrowers, a new servicer.
- Aidvantage: A Maximus subsidiary that processes many of the transferred loans.
- Nelnet: Ongoing servicing of some federal loans.
This handover created confusion for many borrowers, but the Department of Education has made available resources to assist with the change.
Getting to Know Federal Student Loans
For students seeking higher education, federal student loans provide financial support through the U.S. Department of Education. Types of Federal Student Loans.
Subsidized Loans
- Loan available to undergraduates with financial need.
- Interest is covered by the government while you’re in school, during grace periods, and deferment.
Direct Unsubsidized Loans
- Open to undergraduate and graduate students, based on no financial need.
- Interest accrues from the date of disbursement.
PLUS Loans
- Available for graduate students and parents of dependent undergraduates.
- Please note that these loans require a credit check and that the interest rates are generally higher than other federal loans.
Consolidation Loans
- Allows borrowers to consolidate several federal student loans into one.
- Easiest repayments but could pay more interest in total.
Ways for Borrowers to Repay Their Loans
Federal student loans have multiple repayment options and allow the borrower to choose what best fits their payment ability. Common options include:
Standard Repayment Plan
- Fixed payments over 10 years.
- Best for borrowers that can make regular payments
Graduated Repayment Plan
- Payments begin low and increase throughout the life of the loan.
- Good for Hopes/Growth income borrowers
Plan on Income Driven Repayment (IDR)
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- Payments are based on income and family size.
- These include Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR).
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Provides loan forgiveness after 20-25 years of payments.
Extended Repayment Plan
- Lengthens the loan-term repayment up to 25 years.
- Lowers monthly payments but makes total interest more
Public Service Loan Forgiveness(PSLF)
FedLoan’s mission included running the Public Service Loan Forgiveness (PSLF) program. PSLF provides loan forgiveness for borrowers who:
- Work full-time for an eligible employer (government or nonprofit organization).
- Make 120 qualifying monthly payments under an income-driven repayment plan.
- Have Direct Loans.
With the transfer of PSLF servicing to MOHELA, borrowers ought to check that their loans are transferred correctly and that payments remain eligible toward forgiveness.
What Borrowers Should Do Post-FedLoan Transition
If your loans were serviced by FedLoan, you need to:
- Verify Your New Servicer: First, log into Federal Student Aid to confirm your current loan servicer.
- Update Contact Information: Make sure your new servicer has the correct phone number, email and address for you.
- Check Loan Details: Go through your loan balance, interest rates, and repayment plan.
- Establish a New Payment Method: People need to set up automatic payments or online payments with the new servicer, he added.
- Track PSLF Progress: If you were in the PSLF program, make sure your payment count has moved over correctly.
- Beware of Scams: If you see third-party companies advertising that they will help you with forgiveness for a fee, the help from the official loan holders is free.
Federal Student Loans: Alternatives
Federal loans may come with protections like income-driven repayment and loan forgiveness, but some borrowers seek alternatives:
- Scholarships and Grants: Money that students do not have to pay back.
- Work-Study Programs: Why are یthose reduced in school time; students can earn money.
- Private Student Loans: Issued by banks and credit unions, but do not come with the same protections as federal student loans.
- Employer Breakdown Programs: Certain employers provide assistance with tuition reimbursement or the repayment of student loans.
The Future of Federal Student Loan Servicing
With FedLoan out of the picture, the Department of Education is working to streamline student loan servicing. Key changes include:
- Improved communication with borrowers to avoid missed payments.
- More simplified forgiveness programs to prevent application mistakes.
- Easier loan management plans of repayment
- Student Loan Forgiveness Programs, like focused help for borrowers experiencing specific hardship situations.
Conclusion
While FedLoan is no longer a functioning loan servicer, its legacy lives on for student loan borrowers. If you are on the verge of federally funded student debt, you need to know all about the federal student loan system, repayment options and forgiveness programs for optimal financial health. Know what you need to do: If your loans were with FedLoan, keeping up-to-date on your student debt and being proactive about repayment will help your new servicer and repayment go smoothly.
