How to Ditch Your Student Loan Servicer

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We want to believe our student loan servicer is working in our best interest, but unfortunately, that’s not always the case.

Although student loan servicers are supposed to help you manage your student loans the right way, some fail to give appropriate guidance to borrowers. Along with mishandling payments, some servicers have allegedly nudged borrowers into costly repayment plans that made it more challenging for them to get out of debt.

For example, a group of states’ attorneys general are currently suing Navient Corp., one of the nation’s largest student loan servicer. The Consumer Financial Protection Bureau — which has also filed suit against Navient — has accused it of “illegally failing borrowers at every stage of repayment,” though Navient has disputed the allegations.

This isn’t to say that all student loan servicers are bad; some have minimal complaints from borrowers and strong reviews for customer service. But how can you change to a loan servicer with a good reputation if you’ve had sketchy experiences with your current one?

Here are two ways to change your student loan servicer, along with some tips at the end to figure out which student loan servicer is best for you.

1. Change your loan servicer through federal loan consolidation

When you take out federal student loans from the Department of Education, you’re automatically assigned a loan servicer to manage your payments.

Although you can’t choose your loan servicer in the beginning, you do have a way to switch to a new one — through federal student loan consolidation. Consolidation is the process of combining two or more of your federal loans into one new one.

You can choose a new repayment plan, such as graduated repayment or an income-driven plan. You’ll also get a new interest rate, which will be the weighted balance of your previous interest rates rounded up to the nearest one-eighth of 1%.

And you’ll get the chance to choose your loan servicer. There are nine federal student loan servicers from which you can choose:

If you’ve had no issues with your current servicer, you can stick with it. But if you’d like to change loan servicers, look into customer reviews on sites such as Consumer Affairs or the Better Business Bureau.

By learning about how other borrowers have fared, you can find a loan servicer with a decent reputation for working with customers.

2. Switch to a new lender through student loan refinancing

Your second option for ditching your student loan servicer and getting a new one is through student loan refinancing.

Like federal consolidation, refinancing lets you combine multiple loans into a single one, thereby simplifying repayment. Plus, it lets you adjust your monthly payments and choose new repayment terms, typically between five and 25 years.

But the similarities largely stop there, since refinancing involves private banks, rather than the federal government. Unlike consolidation, both federal and private student loans are eligible for refinancing.

What’s more, refinancing can result in a lower interest rate, potentially saving you money over the life of your debt. Likewise, all loans — federal or private — that you choose to refinance would be combined into a single private loan at whichever bank, online lender or credit union you choose.

Privatizing your debt means you can switch to a new lender and servicer, many of which have strong reputations for customer service and even offer extra benefits to borrowers. Student loan refinancing provider SoFi, for example, even holds events and meetups for its customers, as well as offering career coaching and a program for aspiring entrepreneurs.

But to get a lower interest rate and other refinancing benefits, you must pass a credit check. Most refinancing providers look for a strong credit score and stable income from you or a cosigner before approving your application for student loan refinancing.

What’s more, you must be willing to sacrifice federal programs and plans. When you turn your debt private through refinancing, you lose access to income-driven plans, Public Service Loan Forgiveness, and other federal options.

So if you need federal protections, avoid refinancing your federal loans with a private lender. But if you don’t, refinancing could save you money and let you switch to a new loan servicer with possibly better customer service.

As when changing loan servicers through federal consolidation, check out customer reviews to compare refinancing providers. And give the provider a call to speak with customer support directly. By doing your research now, you can find a new loan servicer that will treat you better than your old one.

Which student loan servicer is best?

With all the news around unethical student loan servicers, are any of them working in the best interest of borrowers? One avenue for your background check on potential student loan servicers is the CFPB’s database of complaints.

Along with reading customer reviews, you might also reach out to friends or family members with student loans of their own. If any of them have horror stories about a particular loan servicer, you’ll know to steer clear.

As for private refinancing providers, Student Loan Hero recommends banks and online lenders with great customer service, as well as competitive interest rates. According to our research, the best ones include SoFi, CommonBond, Earnest and Laurel Road. LendKey is also a solid option, as it can connect you with refinancing offers from local banks and credit unions, which traditionally have reputations for personalized customer service.

By selecting a servicer or lender with a good reputation, you hopefully will no longer have to deal with the frustration of a loan servicer that falls short in helping you pay off your debt in the quickest and cheapest way possible.

But if you find yourself in another subpar situation, you could consolidate or refinance for a second time to switch again.

Make sure your loan servicer is working with you

Understanding the complicated world of student loan repayment is no easy feat, and it gets even harder if your loan servicer isn’t giving you all the information you need to manage your student loans.

Not only should your loan servicer explain your options for repayment plans and forgiveness programs, but it should also help you choose the repayment strategy that’s best for your individual situation.

Unfortunately, some loan servicers have led borrowers into forbearance or income-driven plans even when these approaches were unnecessary and cost them extra money in the long run.

Because your loan servicer might not always give you the best guidance, it’s crucial to empower yourself with knowledge about your student loans. Learn about your options for repayment, and use student loan calculators to estimate the long-term costs of your loans.

By educating yourself about your loans, you can make the best decisions for your finances, rather than relying solely on what your student loan servicer tells you to do.

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