Hate Your Federal Student Loan Servicer? Here’s What You Can Do

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When you take out federal student loans, you don’t get to choose your servicer. The Department of Education assigns you one, whether it’s Navient, FedLoan Servicing or another of the student loan servicing giants.

And unfortunately, some borrowers run into problems with their student loan servicers, such as bad customer service or misleading information. Fortunately, it may be possible to change student loan servicers to one that better meets your needs. If you’re fed up with your servicer, here are some ways to find a student loan servicer that treats you better.

How to switch student loan servicers by refinancing
3 ways to change student loan servicers without refinancing
Bottom line: If you want to switch student loan servicers, look before you leap

How to switch student loan servicers by refinancing

Refinancing student loans is one way to get rid of a federal student loan servicer you hate without having to repay your debt in full.

Student loan refinancing can have other perks, too. Refinancing gives you the control to find a student loan servicer that works with your current financial situation. In addition to choosing a new servicer, you can choose a new student loan with terms that fit your needs, including your interest rate and length of repayment.

Follow these steps to refinance your student loans and find a servicer you’re happy with:

1. Figure out what you want in a servicer

You probably have a good idea of what you don’t want after dealing with lousy student loan servicers. Use that as a starting point to identify which student loan servicer features are important to you.

Depending on your needs, you might be looking to gain any of the following through student loan refinancing:

  • Excellent customer service
  • Fair and transparent repayment policies
  • Unemployment protection, deferment or forbearance options
  • Option to refinance with a cosigner
  • Flexible underwriting and credit requirements
  • Loan term options that match your repayment goals
  • Lower student loan interest rate

Make sure you put together a wish list of features you want in a servicer before you start shopping for the best options.

2. Vet student loan refinancing companies

Now that you have an idea of what you want, you can research student loan refinancing companies that potentially meet your needs. You can start by using the Student Loan Hero refinancing marketplace to search for and compare companies on their rates and terms.

Then, visit their websites and read up on their student loan features. Many refinancing companies provide plenty of information on their sites explaining their student loan refinance rates and terms. They may mention other features they offer, such as repayment assistance or refinancing with a cosigner.

It can also be a good idea to contact the ones you’re interested in. You can get direct answers to your refinancing questions while also taking their customer experience for a test drive. Take note of the customer service representative’s responsiveness, how long you’re put on hold and other indicators of good (or poor) customer service.

Lastly, make sure you read in-depth reviews of the refinancing companies you’re considering. Reviews can give you an excellent idea of what kind of service you can expect. You can also check out customer reviews to see what types of experiences other people have had. These can often alert you to potential red flags.

3. Select your best refinancing terms

Once you choose a servicer or narrow it down to a few top picks, you can get interest rate quotes. A student loan servicer will often perform a soft credit check to generate a rate quote without affecting your credit. You can use this process to get a few quotes and see which one has the best deal for you.

After you make your final selection, you can officially apply. This involves submitting paperwork and other personal details, as well as a hard credit inquiry. Then, when you’re approved for refinancing, your new servicer will repay your old student loan(s) and issue you a new one through them, ridding you of your old federal student loan servicer for good.

But before you refinance student loans, a word of caution: Refinancing federal loans turns them private, meaning you’ll lose access to federal plans and protections. If you’re relying on income-driven repayment, Public Service Loan Forgiveness or another federal benefit, refinancing probably isn’t the right move, no matter how eager you are to ditch your loan servicer.

3 ways to change student loan servicers without refinancing

Refinancing your student loans isn’t the only way to change student loan servicers. There are other options you can consider if refinancing doesn’t seem like the right choice for your situation and you’re wanting to switch student loan servicers to one that better meets your needs.

1. Apply for a Direct Consolidation loan

Another way to switch your federal student loan servicer is to consolidate your student loans. Consolidation involves replacing one or more federal student loans with a Direct Consolidation loan. After you consolidate, you’ll get to choose a new loan servicer from the companies that manage federal student debt.

When you consolidate you’ll get to select new terms, but your interest rate will pretty much stay the same. In fact, it will be the weighted average of your student loans rounded up to the nearest one-eighth of a percent.

Consolidation also helps simplify your debt, since you’ll no longer have to track multiple bills and due dates. Plus, you can choose a new repayment plan, perhaps going with an income-driven repayment plan to lower your monthly payments. And if your student loans have fallen into default, consolidation is one way to get them back into good standing.

Note that private student loans are not eligible for federal student loan consolidation, so this process only applies to federal loans. But if you’re fed up with your federal student loan servicer, consolidation is one way to switch.

2. Pursue Public Student Loan Forgiveness

If you work in a nonprofit, government organization or other qualifying workplace, you may be eligible for forgiveness through the Public Service Loan Forgiveness (PSLF) program. PSLF discharges federal student loans after making 120 qualifying payments while working in public service.

Borrowers who are pursuing the program may get to change student loan servicers. As of the time of writing, FedLoan Servicing is the only federal student loan servicer that manages PSLF applications. Unless FedLoan Servicing is already your loan servicer, applying for PSLF will allow you to change loan servicers.

Unfortunately, if you don’t like working with FedLoan Servicing, you may be out of options when it comes to switching student loan servicers, at least for the federal student loans that are eligible for PSLF.

3. Cancel loans through Permanent and Total Disability discharge

A final option is available for student loan borrowers who experience a permanent and total disability. This might apply to you if you’re a veteran who suffered a permanent disability; if you receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits; or if your doctor certifies that you are disabled.

In this case, you can apply for a full discharge of your federal student loans. Nelnet will service your request, as it’s the only federal student loan servicer that processes disability discharge applications.

Once your request goes through, you won’t have to deal with any student loan servicer anymore — at least not for your federal student loans.

Bottom line: If you want to switch servicers, look before you leap

Dealing with a bad student loan servicer can be a huge headache. Along with the frustration of dead-end phone conversations, you may get advice that’s just plain bad for your situation.

Fortunately, there are a few ways to change student loan servicers, such as refinancing student loans with a private lender or applying for federal loan consolidation. But all these approaches come with pros and cons, so it’s important to do your research before making a change.

And remember that student loan servicers aren’t the only source of knowledge about student loans. By heading to trusted sites, such as the Federal Student Aid website or the Student Loan Hero blog, you can empower yourself with the knowledge to make your best choice about your student loans.

Rebecca Safier contributed to this report.

Published in Paying for College, Refinancing & Consolidation, Student Loan Repayment