Student loan servicers are a crucial part of the equation for many people struggling to manage student loan debt. They are the go-between borrowers and the U.S. Department of Education for federal student loans — they make sure they are disbursed and repaid, and, when necessary, forgiven as per federal regulations. Federal Loan Servicing: What is it? Knowing what federal loan servicing is is important for anyone who has student loans. This article demystifies all things federal loan servicing and your student loan servicer’s role in your financial life.
What Is Federal Loan Servicing?
Federal loan servicing is the practice of managing federal student loans once they’ve been distributed. This includes:
- Sending billing statements
- Processing payments
- Helping to negotiate a repayment scheme.
- Handling deferments and forbearances
- Overseeing borrowers navigating loan-forgiveness programs
- Handling loan consolidation
Federal student loans like those provided through the Department of Education are not issued by the government like private student loans are, however, they are managed by a third party, or student loan servicer. These companies help borrowers through the life of their loans.
Who Are the Biggest Servicers of Student Loans?
Up until a few years ago, a few companies were in charge of servicing federal loans:
-
- Missouri Higher Education Loan Authority (MOHELA)
- Aidvantage (Division of Maximus Education)
- Nelnet
- Edfinancial
- Great Lakes Educational Loan Services (Note: now transferred some accounts to Nelnet)
Previously, companies including FedLoan Servicing and Navient also serviced federal loans, but the companies lost much of their portfolios to other servicers after changes to federal contracts.
There are many different student loan servicers with different policies, customer service styles and online platforms. Borrowers are not given a choice for who will service their loan; they are matched with a servicer at random.
How Do Student Loan Servicers Function?
Once your loan has been disbursed and you’ve begun repayment, your loan is assigned to one of the Department of Education’s contracted student loan servicers. From that point forward, the servicer is the main contact for:
- Making payments
- Changing repayment plans
- Requesting deferment or forbearance on your student loans
- How to Apply for Public Service Loan Forgiveness (PSLF)
- Addressing problems like incorrect billing
Servicers send monthly loan statements, keep a record of your payment history and keep you in good standing. They’ll also let you know what your options are if you have trouble affording your payments, like enrolling in an income-driven repayment (IDR) plan.
College is Getting More Expensive – Here is Why
Although federal loan servicing is designed to streamline repayment, many borrowers have gripes with their student loan servicers. Some common issues include:
- Lack of clarity on how to pay back.
- Improper request of deferment or forbearance
- Wrong execution of the collections
- Complications with forgiveness programs such as PSLF
- Poor customer service
In fact, lawsuits and government investigations have found that some servicers gave borrowers the wrong information that wound up costing them more on their loans or prevented them from getting their loans forgiven.
Given these pitfalls, it’s important that borrowers document all communications, verify loan accounts are accurate and advocate for themselves if something appears amiss.
How to Find Out Who Your Servicer Is
Not sure who your student loan servicer is? You can easily find out:
- Access the Federal Student Aid site.
- Sign in to your account with your FSA ID.
- Go to “My Aid” and you’ll see your loan servicer information.
Monitoring your servicer and account status keeps you from missing payments and helps you understand your repayment and forgiveness options.
What Kind of Repayment Options Do You Have?
Specific Repayment Plans For those using Direct Loans, repaying your debt can be completed under the following plans with your loan servicer (federal loan servicing):
- Standard Repayment Plan: You pay a fixed amount every month and are done in 10 years.
- Graduated Repayment Plan:Payments begin lower and grow every two years.
- Extended Repayment Plan: The extended repayment plan gives you a long window of up to 25 years to repay your student loan debt.
- Income-Driven Repayment Plans (IDR): Payments based on your income and family size.
IDR plans, such as the Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE) are offered. These plans can make monthly payments more affordable, and may result in loan forgiveness after 20 to 25 years.
You can work with your student loan servicer to transition between repayment plans if your financial circumstances change.
How federal loan forgiveness works
One of the biggest benefits of federal loans is the possibility of forgiveness programs. Some popular options include:
- Public Service Loan Forgiveness (PSLF): After making 120 eligible payments for borrowers who work full time for government or nonprofit employers.
- Teacher Loan Forgiveness: Up to $17,500 in forgiveness for teachers at low-income schools.
- Income-Driven Repayment Forgiveness: The remaining balance on your loan is forgiven after 20 or 25 years of IDR payments.
Forgiveness, forgiveness, forgiveness.
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How to Work With Your Student Loan Servicer
Here’s A few tips on how to properly handle your student loan servicer:
- Keep records: Hold on to copies of all emails, letters and forms.
- Keep an eye on your loan balance: Log in to your account regularly and be on the lookout for any inaccuracies.
- Know your rights: Learn about repayment and forgiveness options.
- Get things in writing: Try to communicate in email or certified mail.
- File complaints if needed: If you have major problems, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) or with the Department of Education.
With a little planning and attention to your loans, you can save hundreds of dollars and simplify your repayment experience.
The Next Federal Loan Servicer
The Education Department is trying to overhaul federal loan servicing by issuing new contracts in so-called Next Gen process. This overhaul aims to:
- Make it easier to reach out to loan-holders
- Enhance the customer service experience
- Improve transparency and accountability
- Streamline online loan management for borrowers
This will provide a more borrower-friendly system for the borrower to obtain all loan information at a single portal and ultimately avoid mistakes.
Conclusion
Federal loan servicing can seem daunting, but the more you know about how student loan servicers work, the better equipped you are to manage your debt. Keep yourself informed, express yourself clearly and fight for what you deserve as a borrower. Whether you’re looking for help repaying your loan, deferring it, or getting it forgiven, your loan servicer is going to be your closest buddy — so be sure to keep yourself engaged and proactive as you navigate repayment.
