Introduction
Student Loan Servicers — Part of an Existing System They serve as intermediaries between borrowers and lenders to process payments, manage accounts, and provide customer service. But many borrowers feel they do not fully grasp their student loan servicer’s role, resulting in confusion and potential financial challenges. To make things simpler for students and graduates, this article discusses the roles, issues, and influence of student loan servicers on borrowers so students and graduates can get on the right track for their loan repayment.
What Are Student Loan Servicers?
Student loan servicers are businesses hired by the federal government or private lenders to oversee student loan accounts. Here are their main responsibilities:
- Processing loan payments
- Managing borrower accounts
- Helping borrowers with repayment options
- Responding to questions about types of loans and payment options
- Submitting loan status to credit bureaus
Servicers for federal student loans are assigned by the U.S. Department of Education, while private lenders partner with independent servicers to manage their portfolio of loans.
Major Student Loan Servicers
There are several companies that act as student loan servicers — managing thousands to millions of loan accounts for people. Here are some of the largest student loan servicers in the U.S.:
- MOHELA (Missouri Higher Education Loan Authority*)
- Aidvantage (Navient’s federal loan servicing arm, now signed over to the brand Aidvantage)
- Nelnet
- Edfinancial
- ECSI (Educational Computer Systems, Inc.)
- OSLA (Oklahoma Student Loan Authority)
- Great Lakes Educational Loan Services (which has since ceased to service federal loans)
Servicers differ from one another, and that can affect a borrower’s experience in repaying loans.
Functions of Student Loan Servicers
Loan Payment Processing
Servicers collect and apply monthly loan payments, keeping borrowers current on their loans. They also apply to principal, interest and fees, which affects the speed with which a borrower is able to repay their debt.
Offering Repayment Plans
Student loan servicers help borrowers pick the right repayment plan. With federal loans you have options such as:
- Standard Repayment Plan (10 years to repay with fixed payments)
- Graduated Repayment Plan (lower payments that increase gradually)
- Income-Driven Repayment (IDR) Plans (payments based on income and size of household)
- Extended Repayment Plan (long term with smaller monthly payments)
And Give Loan Forgiveness and Discharge Information
Many borrowers will also qualify for forgiveness programs like Public Service Loan Forgiveness (PSLF) or Teacher Loan Forgiveness. Servicers assist borrowers in understanding the eligibility requirements and application processes.
How to process deferment and forbearance requests
Borrowers struggling financially can request a deferment or forbearance, which halts loan payments for a limited timeframe. Servicers process these requests and decide borrower eligibility.
Understanding Borrower Concerns and Questions
Servicers are the go-to contact for student loan borrowers, providing information on repayment questions, interest rates, due dates and changes to accounts.
Problems With Student Loan Servicers
Despite their crucial role, student loan servicers have long attracted critical attention. Servicer errors, miscommunication or a lack of transparency make life difficult for many borrowers. Here are a few common challenges:
Poor Customer Service
Many borrowers have been left dealing with long wait times, unhelpful representatives and inconsistent information. This can result in frustration and lost opportunities for improved repayment plans or forgiveness programs.
Misapplied Payments
Incorrectly applied payments increase the amount of interest you ultimately pay and lengthens the time it takes you to repay your debt. Extra payments intended to reduce principal are sometimes instead applied toward future interest, borrowers find.
Confusing Changes to Repayment Plans
Changing repayment plans is supposed to be painless, but many borrowers find it complex and time-consuming. Some servicers don’t adequately explain the options available, which can lead to costly mistakes.
Limited Guidance on Loan Forgiveness Programs
Programs such as PSLF rely on servicer cooperation to track qualifying payments. Some servicers have been accused of not counting qualifying payments correctly, which has delayed borrowers’ eligibility for forgiveness.
When One Servicer Transfers Your Loan to Another Servicer
When a borrower’s loan is moved from one servicer to another, mistakes can happen — lost records, incorrect balances and missing payment histories.
How Borrowers Can Handle Challenges With Their Student Loan Servicers
Borrowers can take proactive steps to ensure a smooth loan repayment experience:
Keep Detailed Records
Keeping records of loan agreements, payment receipts and communication with servicers helps borrowers contest errors and track their progress on repayment.
Auditing Loan Statements Periodically
Borrowers should review their monthly loan statements, to help ensure payments are being applied properly and they’re in the right repayment plan.
Explore All Repayment Options
Once borrowers have a solid understanding of the available repayment plans, they will be able to choose the right plan for their individual financial need. A conversation with a financial adviser might help.
Monitor Credit Reports
Because servicers report payment history to credit bureaus, borrowers need to regularly review their credit reports to make sure the loan information is accurate.
In case of need, file complaints
In the event that a borrower has a problem with their servicer, they can lodge complaints with:
- Consumer Financial Protection Bureau (CFPB)
- The Federal Student Aid Ombudsman of the U.S. Department of Education
- It has determined that the Better Business Bureau (BBB) —
Next Student Loan Servicing Post Thrown into Chaos
The federal government has recognized persistent problems with student loan servicers, and it is striving to enhance the experience of borrowers. Recent changes include:
- Serving Servicing Transitioning to a New Loan Servicing System: The Department of Education intends to sustain a more borrower-friendly approach that consolidates servicing functions.
- Stricter Oversight and Rules: New rules seek to hold servicers accountable for errors and misleading practices.
- Expanded loan forgiveness programs: Because the criteria for borrowers to qualify for forgiveness has been relaxed, and the processes for servicing has been improved, more borrowers can be eligible for forgiveness.
Conclusion
Student loan servicers handle billions of dollars in student debt, making their function critical in who pays and how. Though they offer needed services such as payment processing and repayment assistance, they are widely criticized for errors and poor service. Borrowers need to remain educated, active and alert when working with their servicer to sidestep potential problems. Students and graduates can navigate the repayment system more effectively and move toward financial stability by understanding how student loan servicers work and learning their rights as borrowers.
