How to change student loan servicers

If you're unhappy with your student loan servicer, there are steps you can take to obtain a different one. (iStock)

The U.S. government hands out the majority of student loans, making the U.S. Department of Education easily the largest college loan lender in the nation. But lending money to students is as far as Uncle Sam goes on the college financing front.

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Actual student loan management is farmed out to an array of student loan servicers, with Fed Loan Servicing, Great Lakes, Navient, and Nelnet comprising 90 percent of all U.S. student loan servicers.

By and large, student loan borrowers view those loan service companies in a negative light.

IS IT BETTER TO PAY OFF STUDENT LOANS OR INVEST?

According to data from the U.S. Consumer Financial Protection Bureau (CFPB), from 2017 to 2019, the most common complaint among student loan borrowers was “dealing with your lender or student loan servicer.” That same complaint was prevalent among 70 percent of federal student loan borrowers, the CFPB reported.

If you get to the point where you just can’t work with your student loan servicer, you do have options.

“I ended up changing my servicer after five years of terrible service, rude representatives, and an awful rate they essentially strong-armed me into despite knowing my financial status,” said Courtney Keene, director of operations at MyRoofingPal, an inline home improvement services platform. “I wanted options without having to refinance, so I had to look into consolidating my loans.” Keene said the switch was a “good choice” as she was able to switch out of several different, smaller loans handled by a couple of lenders.

“Consolidating let me choose a reputable company, allowing me to do lots of research and talk to people who'd actually used them as their own servicer,” she said. “I mainly wanted to find a company that would agree to lower monthly payments on the consolidated debt, and one that would offer respectful customer service reps who understand that people trying to repay a loan in good faith shouldn't be raked over the coals.”

WHEN TO REFINANCE YOUR STUDENT LOANS

How to switch student loan servicers

If you’re like Keene and “want out,” take the following steps to change out of your student loan servicer and into a better, more streamlined loan management experience.

Know what a student loan servicer does. Starting from scratch, make sure you know exactly the role a student loan servicer plays in your student financial aid experience. Then you’ll know exactly what works and what doesn’t from your loan service provider and you can act accordingly.

“A student loan servicer collects the payments, sends bills, and reports missed payments to credit bureaus,” said Dennis Shirshikov, a senior financial analyst at FitSmallBusiness.com in New York City.  “Basically, it’s responsible for making sure the administrative responsibilities of the lender are complete.”

What are the “red flags” telling you? Warning signs indicating a change is needed include delayed payment statements, incorrect calculations, inadequate time to make payments, and unexpected fees, said Shirshikov. “Any of those issues are a good sign you should start looking for a new servicer,” he said. Additionally, incorrect reporting credit bureaus of late or missed payments are a major red flag. “Some graduates also report that their information is being sold and they receive large amounts of solicitations related to refinancing, which makes reading through a privacy policy especially important,” Shirshikov added.

STUDENT LOAN REPAYMENT PLANS: HOW TO PICK THE BEST ONE FOR YOU

Do your homework. Having been through the process, Keene advises borrowers to make a list of complaints with your current company and find trusted companies that address those issues.

“Think along the lines of better financing terms, top-notch customer service, lower interest rate, and better customer service,” she said. “Decide what's most important to you, then narrow down a list of companies. Look for reviews, talk to others who've dealt with them, and call them to ask questions before you even consider switching.”

Aim for a refinance. The easiest way to switch out of your student loan servicer is to refinance your loan with a private lender.

“If you do it right, refinancing can also save you money in lower interest rates and a shorter repayment period,” said Andrew Latham, a certified personal financial counselor based in Raleigh, N.C.

That said, refinancing is not for everyone, so you’ll want to make sure you research potential refinancing companies.

“Not all private student loan providers are made equal,” Latham noted. “Some have high-interest rates and terrible customer service. Consequently, it's important to vet potential student loan refinancing companies before you commit to a lender.”

Consolidate your student loan. Another option is to apply for a direct consolidation loan with the Department of Education.

“This allows you to combine all your federal student loans into one,” Latham said. “The additional bonus is you can also choose a new loan servicer from the pool of firms the Department of Education (uses). Currently, there are several student loan servicers that work with the federal government.”

Choose an “alternate” route. If you can’t refinance or consolidate your student loan, set your sights on alternative paths like the Public Student Loan Forgiveness Program.

“If you qualify, you may get to change servicers,” Latham noted. “The catch is that, currently, the only servicer that manages PSLF cases is FedLoan Servicing. So you might be out of luck if you have issues with them once you're locked in the PSLF program.”

What happens if you opt to stay with your student loan servicer

If, after you’ve given the matter some thought, you decide to stay with your student loan servicer, give that servicer one last chance.

“It’s advisable to try and sort out the issues you are experiencing with your student loan servicer before changing to a different one since there are several steps involved in switching,” said Leslie Tayne, a New York City-based attorney who specializes in consumer debt and personal financial legal services.

“Before changing your loan servicer, file a complaint with the servicer’s customer service office. If the servicer is unresponsive or unwilling to work with you, you can file a complaint on the CFPB’s website.”

“You can also file a complaint or report an issue on the Federal Student Aid (FSA) website,” Tayne added.