Two federal student loan servicers have announced their plans to drop their government contracts at the end of 2021, and the U.S. Department of Education will have to reassign the loans of nearly 10 million borrowers to different servicers.
The Pennsylvania Higher Education Assistance Agency (PHEAA), which operates as FedLoan Servicing, announced on July 9 that it won't extend its 12-year federal loan servicing contract expiring Dec. 14, 2021. Granite State Management & Resources, which is part of the nonprofit New Hampshire Higher Education Association Foundation (NHHEAF) Network, will also drop its contract in order to focus on administering private student loans, according to a July 19 press release.
Experts worry that this transition will cause confusion for federal student loan borrowers, especially since it coincides with student loan payments resuming on October 1. Keep reading to see if your student loans are impacted, and see how you can prepare for the transition to a new servicer.
If you're worried about keeping up with your student loan payments with the forbearance period coming to an end, consider refinancing your private student loans on Credible to lower your monthly payments while interest rates are low. This can help you stay current on your other debts, including federal student loan debt.
Have your student loans been dropped by your servicer?
If your student loans are serviced by FedLoan Servicing or Granite State Management & Resources, then your loans will be reassigned to new federal loan servicers by the end of the year. This will not affect your loan repayment plan, such as your interest rate, loan balance or monthly payments.
FedLoan Servicing was recently sued for allegedly preventing public servants from having their student loans forgiven or reduced under the Public Service Loan Forgiveness (PSLF) program. The servicer said that federal loan programs "have grown increasingly complex and challenging while the cost to service those programs increased dramatically."
When shopping for private student loans, compare interest rates across multiple lenders on an online marketplace like Credible to ensure you're getting the lowest rate possible for your situation.
What happens if your loans are impacted
With student loan payments resuming in October and millions of borrowers being transferred to new servicers around the same time, the office of Federal Student Aid (FSA) is working to reduce confusion amid the changes so borrowers don't default on their loans.
"Our wind-down plan will include early and frequent communications and clear guidance about what borrowers should expect. Additionally, FSA will provide strong oversight and hold servicers accountable for making sure borrowers are supported and not harmed during this transition."
While the Department of Education has a plan for your federal student loans, it's important that you prepare your finances for the transitions taking place this year. Here are a few things you should do before student loan payments resume:
- Make sure your contact information is up-to-date. Get in touch with your loan servicer and the FSA to make sure they have your correct physical address, email address and phone number to ensure you don't miss out on any important mail communication.
- Check to see if your account has automatic payments. If your federal student loans are set up on direct debit through your bank account, then your first payment will be withdrawn in October. Make sure there's enough money in your account to cover your student loan payment.
- Enroll in an income-driven repayment (IDR) plan or hardship forbearance. If you can't afford that first payment in October, see your options for unemployment deferment or reduced payments on the FSA website.
Lastly, you may want to consider refinancing your private student loans while interest rates are historically low. Doing so can help you pay off your debt faster, lower your monthly payment and save money on interest on your student debt.
One caveat: it's not recommended that you refinance your federal loans, since doing so will make you ineligible for federal protections like IDR plans and student loan forgiveness. Make sure your debt is through a private lender before refinancing.
Get in touch with a knowledgeable loan officer at Credible to discuss your repayment options, so you can decide if refinancing is right for you.
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