FedLoan Servicing (PHEAA) to Stop Servicing Federal Student Loans
WHAT’S HAPPENING: Federal student loans serviced by FedLoan Servicing will be moved to a different loan servicer when FedLoan Servicing’s contract expires later this year.
WHO THIS AFFECTS: Anyone with FedLoan Servicing as their federal student loan servicer, and particularly those who are working towards Public Service Loan Forgiveness (PSLF).
HOW: Loans serviced by FedLoan Servicing will be moved. The details of where and when they will be moved have yet to be determined.
WHEN: FedLoan Servicing contract expires December 14, 2021; presuming the transfer of loans will happen prior to that contract expiration date.
WHAT YOU SHOULD DO: Obtain copies of all your student loan records with FedLoan Servicing and update contact information in your FedLoan Servicing account so you can be sure to receive all correspondence regarding your loans.
Numerous recent reports reveal FedLoan Servicing (PHEAA) is choosing to no longer service federal student loans at the end of this year. Specifically, their contract with the Department of Education expires on December 14, 2021, and will not be renewed.
In addition to administering federal student loan repayment for millions of borrowers, FedLoan Servicing has also been the “official” monitor of the PSLF program. This means if you submit a PSLF Employment Certification Form and have some qualifying PSLF time, your qualifying loans are moved from whatever other federal loan servicer(s) you have to FedLoan Servicing (PHEAA). Thus, anyone who has student loans with FedLoan Servicing or anyone who has submitted a PSLF Employment (particularly recently), should pay extra close attention to this recent announcement.
FedLoan Servicing (PHEAA) services the highest share of federally held student loan balances (33%) and borrowers (25%). Because they also monitor PSLF and we have been recommending new graduate veterinarians choose them with their post-graduation consolidation, there is a good chance many veterinarians have FedLoan Servicing as their current loan servicer.
There has been no shortage of documented issues with PSLF, and the loan servicers are a huge part of the confusion. Congress also plays a huge role in that confusion based on how the program was initially set up. None of this means you can’t qualify for PSLF — anyone can if they meet the requirements, and it’s become much easier to do so over time. In order to navigate the program, you need to know the PSLF requirements and not rely on your loan servicers to coach you through each step. You have to be your own advocate when it comes to your student loans!
As we discuss in many of the Climbing Mt. Debt sessions, all of the loan servicers are terrible. The loan servicer terribleness is not insurmountable. But, you must arm yourself with knowledge about your educational loans and options in order to protect yourself from any of the loan servicers.
FedLoan Servicing is a bit of a special case among the wonderful world of student loans and servicers. We have recommended people choose FedLoan Servicing as their servicer when given the opportunity after graduating from veterinary school during the federal Direct Consolidation Loan process.
You have to be your own advocate when it comes to your student loans!
We don’t recommend FedLoan Servicing because they are good at loan servicing. We recommend them because PSLF requires you to use an income-driven repayment plan. There are three primary requirements to reach PSLF:
- Correct loans: Only federal Direct Loans are eligible
- Correct payments: 120 monthly on-time payments using an income-driven repayment plan (or standard 10-year monthly payment)
- Correct employment: Employed full-time with a qualifying organization (government, tribal, or 501c3 non-profit)
Not only is income-driven repayment an essential part of PSLF, but these special federal repayment options are extremely useful for the overwhelming majority of recent graduate veterinarians with eligible federal student loans. As bad as FedLoan Servicing has been with administering PSLF, since they have been the “official” monitor of that program, they have a lot of experience with income-driven repayment. This experience cannot be understated given the equally horrific stories around administering the income-driven repayment plan by any of the other federal student loan servicers.
We also recommended FedLoan Servicing because one of the biggest opportunities for mistakes with student loans is during a move from one loan servicer to another. Choosing FedLoan Servicing at the onset of repayment during consolidation (one of the only opportunities you have to choose your loan servicer) assured your loans were less likely to be moved again. In light of the recent announcement, anyone with federal student loans serviced by FedLoan Servicing will have their loans moved to a new servicer.
We don’t yet know what the moving process will look like for current FedLoan Servicing borrowers, nor do we know if the Department of Education will choose another “official” PSLF monitor or several. Either way, moving loans is going to be messy — as it always has been.
Additionally, FedLoan Servicing has had more than 10 years to try to get the administration of PSLF right. How long do we think it will take a new servicer(s) to do the same? None of this is going to be pretty.
For any of you who have FedLoan Servicing, we cannot stress enough the importance of monitoring your loans closely as the Dept of ED transitions away from FedLoan Servicing.
Not only is income-driven repayment an essential part of PSLF, but these special federal repayment options are extremely useful for the overwhelming majority of recent graduate veterinarians with eligible federal student loans.
Make sure you have complete records of your loan history with FedLoan Servicing. Take specific notes on your loan details, including the following:
- Your contact information is up to date (name, address, email, phone number) in order to receive timely correspondence on your student loans
- The time you’ve been using your repayment plan (particularly if you’ve been using income-driven repayment plans)
- Your minimum monthly payments (prior to the pandemic forbearance period) and any recent payment schedules generated for you income-driven repayment plan
- Any logged PSLF time you have confirmed with FedLoan Servicing, including copies of any employment certification forms you’ve submitted
If you have submitted a PSLF Employment Certification Form recently, you will probably have to do that again once you know who your new loan servicer will be. Just like when the pandemic forbearance period ends and we all get re-introduced to student loan repayment, this is going to take some time to work through the kinks and wrinkles.
Coming back to the primary concern — mistakes happen when loans are moved from one servicer to another. There’s not much you can do to avoid the kinds of mistakes that happen when loans are moved. The best you can do is be prepared so you can identify and quickly correct any mistakes that are made. In order to reduce the risk of mistakes made to your loans, you have to have the details of your student loan accounts. If you’ve been primarily relying on your loan servicers to keep records for you, now’s the time to make certain you have those records in your possession. Download statements that you have access to and request older statements that might not be available for download.
We’ll definitely keep you updated as we learn more. There’s a lot to pay attention to here with the end of the pandemic forbearance potentially happening this fall and then FedLoan Servicing exiting the stage. Keep your eyes open, ask lots of questions, and tune up your patience 🙂 Together we can help each other through this latest in the saga of 21st-century student loan repayment…
Mistakes happen when loans are moved from one servicer to another.
Recent Reports on FedLoan Servicing Exit: