The Department of Education moves forward with massive Student Loan Servicer Reform. What does this mean for borrowers?
According to a recent press release, The Department of Education and Betsy Devos announced that they have contracted five new companies to take over federal student loan servicing. The new lenders that will be servicing borrower’s student debt are:
F.H. Cann & Associates LLC (Previously a collection agency for defaulted student loans housed by the department of education)
MAXIMUS Federal Services Inc.
The Department claims that these changes are a part of the shift to a single, centralized servicing platform and Education Secretary Betsy Devos has argued that, “this overhaul will facilitate better outcomes and greater accountability.” According to Devos, “this is another major step toward our commitment to improving customer service and holding our contractors accountable for their performance.” The five new contracted lenders “will correspond with [Student loan borrowers] via phone, chat, social media, postal mail and email, and will support back-office processing,” according to the Department.
Now, I’m all for accountability, transparency and improving the quality of customer service. And yet, it’s almost comical to hear those words from a government official and a federal entity that have had multiple class action lawsuits filed against them for predatory lending and other dishonest lending practices. It begs the question of whether or not this change is really about “greater accountability.” The Department of Education and Secretary Devos have historically and consistently done a poor job of holding its servicers responsible, according to its own inspector general.
The current lenders that house the Department’s federal student loan portfolio are very displeased with the upcoming changes. Nelnet, which is one of the major contractors released a scathing statement after the Department denied a new contract. They stated that they are “shocked” that “two of the highest rated loan servicers” (Nelnet and Great Lakes) will “not be considered by the Department of Education for this contract. We are frustrated and disappointed by this decision and the lack of transparency in the process.” Nelnet also claimed that they would “pursue every legal avenue” to renew their contract and remain involved in the federal student loan system.
What does this mean for you, the borrower?
Student loan servicing transfers can often be messy and confusing. The Consumer Financial Protection Bureau noted in 2015, following the last major servicing overhaul, that “servicing transfers can create confusion when companies have different policies and procedures related to payment posting, allocation, and processing. When servicers change, payments may be lost, consumers may incur surprise late fees, and processing problems and missing account records can knock borrowers off track on repaying their loans or qualifying for forgiveness in repayment plans.” The current servicing contracts are set to expire on December 14, 2020 with two potential six month extensions through December 14th, 2021. This means that borrowers should expect to see significant servicer changes by the end of the year.
We highly encourage borrowers to start periodically downloading and retaining relevant loan records, payment histories, and servicer correspondence to mitigate the potential risk of records and accounts being potentially lost in bulk servicing transfers. This can be a lot of tedious work and organization. That’s why Key 2 Debt Free keeps timestamped records of all communication with the federal servicers and department of education as well as copies of every document submitted to loan servicers or collection agencies. This is one of the many services that Key 2 Debt Free can assist with. If you or someone you know could be potentially affected by the upcoming servicer changes, visit our website and get in touch with your Key 2 Debt Free agent today.
- 5 Tips To Protect Yourself From Upcoming Servicer Changes July 21, 2020
- What Does Student Loan Servicer Reform Mean For Borrowers? July 21, 2020
- 5 Million Student Loan Borrowers Impacted by Federal Lender’s Negligence May 23, 2020
- Why are Millennials turning away from traditional investing? May 9, 2020
- COVID-19 and Student Loan Payments May 9, 2020