WASHINGTON, DC – MARCH 17: Education Secretary Miguel Cardona speaks to the daily news … [+]
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Last week, the Pennsylvania Higher Education Assistance Authority (PHEAA), whose FedLoan Servicing FedLoan Servicing wing of the federal direct lending business, announced that it would not renew its contract with the US Department of Education. FedLoan Servicing is one of the major contract service providers for the student loan department and manages over 8.5 million individual borrower accounts. FedLoan’s contract with the Department is expected to expire in December.
FedLoan Servicing’s abrupt exit from the Department of Education’s sprawling federal student loan system is likely to disrupt millions of student loan borrowers whose accounts are being transferred to a new loan service provider (the specific service provider or providers that will do so) in the coming months. Takeover of the accounts from FedLoan has not yet been determined). The supervision of transfers by third parties commissioned with the Ministry of Education has not gone particularly well historically.
Perhaps even more worrying for borrowers, however, is that FedLoan Servicing was the primary service provider tasked with administering the Public Service Loan Forgiveness (PSLF) program. Led by FedLoan, the PSLF program has been plagued by dismal approval ratings and widespread irregularities, leading to investigations and lawsuits from Congress.
Borrowers on track for PSLF can understandably be concerned about what lies ahead. Here’s what you need to know.
FedLoan Servicing will be gone, but the Public Service Loan Forgiveness Program will still be there
The fact that FedLoan Servicing is pulling out of the student loan service business does not affect the existence of the Public Service Loan Forgiveness (PSLF) program. PSLF is a program created by an enabling bill passed by Congress and signed by President Bush in 2007. Its existence is not tied to any particular student loan provider, which is simply a contractor acting on behalf of the U.S. Department of Education. FedLoan Servicing doesn’t own any of the student loans it oversees – it’s basically just a federal government agent hired to handle the billing operations and manage federal loan programs on their behalf.
Switching to a new student loan manager could get messy
With FedLoan Servicing ceasing later this year, the Department of Education will likely begin transferring borrower accounts to its other contracted loan service companies. Student loan borrowers who are on track for PSLF should be able to make progress towards an eventual loan waiver with the new loan service provider as well.
Processing transfers can be disruptive, however, as there is often no clean or complete transfer of records from one student loan provider to the next. Student loan borrowers who are on track for PSLF should take steps now to protect themselves from possible future disruptions by downloading and saving their payment history and critical correspondence, updating their contact information, and monitoring their accounts and credit reports.
The dispute procedure for obtaining public sector loans is subject to change
During his tenure administering the PSLF program, FedLoan Servicing was accused of widespread irregularities in determining whether student loan borrowers had made qualifying payments for the student loan cancellation program. Senator Elizabeth Warren (D-MA) recently alleged in a Senate committee hearing that FedLoan Servicing “systematically undercounts” PSLF payments and that previous Education Department audits found that PHEAA’s automated system was flawed and improperly disqualified PSLF payments .
Student loan borrowers have filed a variety of disputes with FedLoan Servicing over qualifying PSLF payments, and some borrowers have waited months or more for a resolution. FedLoan Servicing may not have much incentive to resolve these disputes before it goes out of business later this year, and its ability to resolve these disputes may deteriorate as its employees gradually leave to find new employment.
As a result, student loan borrowers may need to file new disputes with their new student loan administrator after the transfer. Alternatively, borrowers can escalate their existing disputes with the Department of Education at any time by filing formal complaints with the Federal Student Aid Feedback System or the Departmental Ombudsman.
Are Public Sector Lending Reforms Coming?
Given the well-documented problems associated with the management of the PSLF program, the abrupt exit from FedLoan Servicing is likely to fuel the call for comprehensive PSLF reform. Earlier this year, over 100 student loan advocacy groups sent a letter to Education Minister Miguel Cardona asking him to use the emergency agency to conduct a 90-day review of the PSLF program and automatically cancel student loan debt for all borrowers who ten or have completed more years in the public service, regardless of their specific fulfillment of the complex admission requirements of the PSLF program.
Stakeholders and Democrats in Congress have also urged the Biden administration to extend the current pause in most federal student loan payments, which is currently set to end on Sept. 30, until programs like PSLF can be resolved. With the recent announcement by FedLoan Servicing, such an extension seems more likely, but the Biden government has not yet made any decisions.
further reading
Huge Student Loan Service: This great loan manager is terminating their contract
Elizabeth Warren to Biden: Extension of Student Loan Break to 2022 or Later Or
Your student loan service provider is changing: 7 steps to protect yourself now
New federal report: Student loan service providers often harm borrowers who seek forgiveness for public service loans
source https://collegeeducationnewsllc.com/how-student-loan-servicing-changes-will-impact-public-service-loan-forgiveness/
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