The world of student loans can be confusing for borrowers, and that includes knowing who their loan servicer is and what that company is supposed to do. A critical part of this machinery are federal student loan servicers — organizations that are contracted to manage the billing, repayment, and customer support of federal student loans. These servicers are middlemen between borrowers and the U.S. Department of Education. Here, we break down what federal student loan servicers are, how they work, what their roles are and what borrowers need to know to successfully manage their loan.
What Are Federal Student Loan Servicers?
Federal student loan servicers are private companies hired by the U.S. Department of Education to oversee federal student loans. After a loan is made to a student, it is sent to one of these servicers, who become the primary contact for the borrower.
These servicers perform a number of crucial functions:
- Sending monthly bills
- Collecting payments
- Aiding in the choice of a repayment plan
- Handling deferment or forbearance applications
- Eligibility, guarantee of loan forgiveness programs
- Facilitatory of the lender-federal government dialogue
Here are a few of the most popular federal student loan servicers:
- It’s called MOHELA (Missouri Higher Education Loan Authority)
- Aidvantage (A Navient co.)
- Edfinancial Services
- Nelnet
- OSLA Servicing (Oklahoma Student Loan Authority)
Responsibilities of Student Loan Servicers Regarding Repayment of Loans
Student loan servicers are an important resource to help borrowers manage loans after graduation. When a borrower graduates or drops below half-time enrollment, their loans go into a grace period, usually six months, before the borrower must begin repaying them. Now is when the servicer springs into action in the borrower’s life, telling her what her options are, giving her advice about a repayment plan.
Duties in Repayment Actions Student loan servicers are required to perform in repayment include:
- Information about repayment plans: Servicers describe Standard, Graduated, Extended, and Income-Driven repayment plans.
- Proper Application of Payments: They apply payments to principal and interest and then to the balance of the loan.
- Changing Repayment Options: Borrowers Can Move Between Payment Plans, Consolidate Loans, Seek Deferment/Forbearance for Financial Hardship.
- Tracking Forgiveness Eligibility: Servicers keep tabs on Public Service Loan Forgiveness (PSLF) progress or other forgiveness programs.
IDR Plans and Servicers
Student loan servicers play an important role in managing Income-Driven Repayment (IDR) plans. These are income-driven plans that limit the monthly payments to a certain percent of the borrower’s discretionary income and set a repayment time period of up to 20–25 years. The remaining loan balance can then be forgiven after this period.
In order to be eligible and stay eligible borrowers need to:
- Include proof of income every year
- If they have a family, then certify the size of a family and the employment status.
- Recertify every 12 months
Servicers are required to send out reminders, collect the necessary forms and adjust monthly payments based on new information about income. If you do not cooperate well with your servicer through this process, the result could be payment miscalculations or losing your eligibility for IDR.
PSLF & The Role of Servicers
The most popular of these programs, Public Service Loan Forgiveness (PSLF), mandates that borrowers must:
- Work full-time for an eligible employer (government or nonprofit, among others)
- Pay in full under a IDR or standard plan for 120 months
- Have Direct Loans
The PSLF program is currently administered by MOHELA. Borrowers need to submit Employment Certification Forms (ECF) annually to verify employment, and to ensure that their payments qualify. Servicers help to verify this and determine whether borrowers are on the correct repayment plan and type of loan to be eligible for forgiveness.
Frequent Student Loan Servicer Complaints
Federal student-loan servicers, though critical to the process, have been the subject of complaints over poor customer service, misinformation provided and administrative errors. Some of the most common borrower complaints :
- Misapplication of payments
- Failure to explain income-driven repayment or forgiveness options
- The paperwork-processing delays
- Misrepresenting available forms of repayment
The lenders’ expertise in this area has been the source of lawsuits and more scrutiny by the Consumer Financial Protection Bureau. In turn, the DOE has started to overhaul its portfolio of servicing contracts, and it has ramped up its oversight to better protect its borrowers.
How to Deal With Your Student Loan Servicer
There are a few some proactively steps borrowers can take to make sure they stay on the same page with their loan servicer:
- Establish Online Account: Sign up on your servicer’s website to monitor your loan balance, payment record and existing repayment plan.
- Document Everything: Keep all correspondence, payment confirmations, and forms sent to your servicer.
- Stay in touch: If you’re having trouble making payments or if you need help, don’t hesitate to reach out to your servicer to see what options you have.
- Certify Employment Annually (for PSLF) – Submit an ECF annually to be sure that you’re on track for qualifying payments.
- Update Your Info: Whenever your address, income or family size changes, inform your servicer so your repayment plan reflects the correct information.
What if Your Loan Is Sold?
The Department of Education can sometimes transfer loans from one servicer to another. It can occur during a servicing contract modification, or when a servicer leaves the market. When this occurs:
- Both the old and new servicer tell borrowers.
- Your loan terms will not be altered.
- It’s important to confirm your loan information with the new servicer and to keep making payments on time.
The recent servicing changes (like when Navient moved some loans over to Aidvantage) have affected millions of borrowers and show that it is important to stay updated during such transitions.
WHO SHOULD SERVICE STUDENT LOANS?
Modernizin’ But, if not forgivable, at least there’s hope: the Department of Education is looking to overhaul the student loan system as part of its Next Gen FSA efforts, with plans to make it easier for borrowers to repay and to give them more support. Objectives for this program are:
- Establishing a single, integrated loan servicing platform
- Streamlining communication with borrowers
- Improving online and mobile tools
- Clear up confusion around repaying and forgiving loans
As part of the endeavor, new contracts—the Unified Servicing and Data Solution (USDS)—are being issued to companies that outperform the previous criteria.
Conclusion
Federal student loan servicers are the engine of the repayment system for millions of borrowers. Knowing their role and rights, can help students and graduates make better financial decisions and avoid costly mistakes. Issues with servicers are standard, but remaining proactive, informed and organized can greatly simplify your loan repayment.
Whether you’re newly entering repayment or pursuing forgiveness through PSLF or an IDR plan, your student loan servicer is your go-to source for information on the repayment options available to you. Be wise in using their tools, ask questions and work to stay engaged so your path to repayment or forgiveness remains on course.
