In a span of one year, three major loan servicers announced that they would not be extending their contract with the Department of Education’s federal student loan system. The loan servicers departing the system include The Pennsylvania Higher Education Assistance Authority (PHEAA), Navient (NAVI), and Granite State Management and Resources.
Among them, the three loan servicers handle a total of more than a million student loan borrower accounts. Their abrupt departure from the federal student loan servicing system is expected to be hugely disruptive to the borrowers whose accounts they manage.
Making things even more complicated is that these servicing transfers are taking place when there’s already a lot of chaos and uncertainty. The student loan payment forbearance is set to expire end of April 2022. Borrowers are not sure about the best way to proceed and have a lot of questions. The change in loan servicer makes things even more confusing. Many borrowers don’t know whether their loan servicer has or will change and how this affects them.
Here’s what you need to know, and more importantly, what you need to do, if your student loan servicer departs the federal loan system.
What Happens When A Loan Servicer Changes
A lot happens behind the scenes when a loan servicer changes. The new servicer takes over all the responsibilities of their predecessors, which is in itself a monumental task.
At your end, you may notice small changes in the tone of their communication or in your interactions with the new customer support. However, any loan servicer change will not, or should not, have any other impact on you or your loans. The terms of your loan remain the same as when you signed the loan agreement, regardless of the loan servicer. The new servicer may be able to impose new terms for new borrowers but they cannot change the terms for existing borrowers. You need not worry about your loan terms getting affected but you should be aware that you’ll be dealing with a different entity.
When the change happens, you should ideally receive notifications from both, the current and new loan servicer. Your current servicer will notify you about the upcoming change. Your new loan servicer will send you a welcome letter introducing themselves. When you receive such communication, you should take time to browse through the new servicer’s website. It will give you a better idea of the range of features and payment plan options they offer.
How A Change In Loan Servicer Can Affect You
In theory, the transition process should proceed smoothly. In practice however, a lot of things can and do go wrong. Many borrowers don’t receive any notification about the change and are not aware that they now have a new loan servicer. They only find out when they try to contact their loan servicer and find they have the wrong contact details. Not receiving any update information is just the tip of the iceberg.
Paperwork, applications, and records often get mixed up or lost. Some borrowers receive wrong notifications about payments due. Others receive surprise late-fee notifications for payments already made before the due date. Still others stop payments because their records show $0 balance and $0 expected payments. A few months later, their loan is in default for non-payment.
Missing or inaccurate account records and wrong notifications can catch borrowers unaware and send their finances off track. Not surprisingly, student borrowers are concerned about their loan servicers departing the federal loan system.
If you’ve got student loans, you absolutely must take steps to protect yourself and reduce the likelihood of expensive, time-consuming disruptions.
What You Need To Do To Protect Yourself
While there’s nothing you can do about the change in loan servicers, there are a lot of things you can do to make sure that you are not adversely affected.
These are some things you should do to protect yourself even before any changes come into effect.
#1. Download And Print All Records Pertaining To Your Student Loans
This is something that you should do every single time you apply for a loan. Keep all records of every loan from day one. This way, you have all the details you need should any dispute arise about payments. If you receive notification about non-payments even though you’ve made the payment, you have the records to prove otherwise. A loan servicer will have a tough time disputing a payment receipt.
Having a record of payments is especially important if you’re enrolled in certain student loan programs such as an income-driven repayment plan or loan forgiveness. Your eligibility to these programs is tied in to your payments. It would be a shame to lose out on the benefits simply because the records are lost.
Keeping a record of every transaction pertaining to your student loans is the best thing you can do to protect yourself. This is regardless of whether or not your loan servicer changes. It’s just good practice to do this.
#2. Save Copies of All Student Loan Correspondence
Save all correspondence between the loan servicer and you. Keep everything, no matter how irrelevant it may seem at the moment. You never know when it will come in handy.
For example, you may receive a letter from the loan servicer notifying you about the updated income-based payment amount after annual recertification. Or you may get a letter approving your application for an income-based repayment plan. Should the loan servicer’s records get misplaced or lost, these letters will serve as proof that about your enrollment was accepted. Saving all correspondence from and to your loan servicer is the most effective and easiest way to ensure that your benefits are protected.
#3. Verify Your New Student Loan Servicer After The Transfer
The unfortunate truth is, there are several predatory companies just waiting to take advantage of the prevailing confusion. They prey on concerned borrowers who are seeking clarifications and answers to their many questions. Many scammers reach out to stressed borrowers pretending to be acting on behalf of the U.S. Department of Education. Unsuspecting borrowers give them their personal and financial details and find themselves victims of identity theft. This creates even bigger problems.
Ultimately, you alone are responsible for monitoring your loans and looking after your financial affairs. Before interacting with anyone regarding your loans, it’s important to verify that your new student loan servicer is legitimate.
Finding out who your federal student loan servicer is and verifying that they are legitimate is easy. Log in to your account at the Department of Education’s federal student aid website. In your account you’ll find all details about your current loan servicer along with their contact information.
In your FSA account, you’ll also find all details about your loan, including the payment history, loan balance, next payment due, and more. If you have multiple federal student loans, you’ll find details of each and every loan in your account.
Alternatively, call the Federal Student Aid Information Center at 800-433-3243 for details about your federal student loans, including your new loan servicer.
#4. Make Sure Your New Student Loan Servicer Has Your Correct Contact Information
When the transfer between loan servicers takes place, all your personal and financial details will get transferred to the new student loan servicer. While you’re logged into your account, take a minute to make sure that your contact information is correct. This is especially important if you recently moved home or changed your phone number or email id. You don’t want to miss important updates or notifications that the lender sends.
#5. Explore Your New Servicer’s Website
All loan servicers generally follow the same guidelines for managing federal student loans. These are set by the Department of Education and all loan servicers are expected to comply with them. However, there may be some minor differences in the way they handle the loans or process payments. These little differences may or may not make a difference to you. It’s better to find out right at the outset.
You’ll find all the information you need on the loan servicer’s website. If you’re looking for specific information that’s not on the website, you can call the company and ask them.
#6. Re-Enroll In Auto-Debit
When loan servicers change, your auto-debit authorization does not get automatically transferred to the new company. If you overlook your automatic payments set up, months could go by without the servicer receiving any payments. After a certain number of days past the due date, your loans will go into default.
Setting up auto payments is your responsibility. Don’t wait till your loans go into default. Set up another auto-debit to the new servicer as soon as you receive notification about the change.
#7. Monitor Your Credit Report
Your credit report has a record of your loan payment history. Records of early and late payments contribute to score increases and decreases. If you missed any loan payments because of erroneous notifications during the shuffle, your credit score will get damaged for no fault of yours. Some errors in credit reporting can cause long term damage if not resolved early.
Monitoring your credit report is vital at this time. You have a legal right to request one free credit report every year from the major credit bureaus. Get your credit report and go through it. File a dispute with the bureau if you find any damaging errors and get it corrected so your credit score reflects correctly.
A Final Thought
Whether your student loan account gets transferred to a new loan servicer or not, it’s always a good idea to stay on top of things at all times. You can do this by following the 7 tips above. This will minimize any confusion that may result from the transfer and also make it easier for you to resolve any issues that arise.