Oct. 21, 2020 update: The contract for student loan servicer CornerStone had been extended through 2022, but CornerStone subsequently decided to terminate its loan servicing contract, citing “financial losses” as a result of the Education Department’s terms. CornerStone’s portfolio was slated to be transferred to FedLoan Servicing, according to Forbes’ reporting.
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The U.S. Department of Education has announced signed contracts in June 2020 with five federal student loan servicers that it hopes will bring the long-awaited NextGen platform to fruition. But before you worry about the adjustment to your loan repayment, the Education Department also says borrowers won’t see their servicer change in 2020.
Federal Student Aid’s Chief Operating Officer Mark Brown added in an Aug. 4, 2020, blog post that existing student loan servicers, such as Navient and Nelnet, saw their contracts extended through 2021 and others into 2022.
Given the tumult surrounding the recently extended federal loan repayment suspension, borrowers could use a dose of consistency. That’s what Brown’s public comments delivered.
Brown, who reports to Education Secretary Betsy DeVos, broke the news that the list of federal student loan servicers isn’t changing immediately, thanks to the extension of contracts that were previously set to expire in 2020.
|Federal student loan servicers extended…|
|Through December 2021||Through March 2022|
|● FedLoan Servicing (PHEAA)|
● Great Lakes
|● Granite State (GSMR)|
● OSLA Servicing
Whether some of the longstanding student loan servicers will stay on once NextGen student loan servicing is officially launched remains unclear. Nelnet and subsidiary Great Lakes said on June 22 that they were out of the mix for a long-term contract.
“There is another contract round for the architecture of a common servicing portal, but that should not diminish the importance of the [June 24] announcement of a chosen five,” retired public policy expert and onetime Education Department whistleblower Jon H. Oberg wrote in a blog post.
F.H. Cann & Associates, Maximus Federal and Trellis Company, along with two holdovers from the current list of federal loan servicers — MOHELA and EdFinancial Services — will provide “customer support” and “back-office processing,” the department said.
As before, federal borrowers will be assigned a student loan servicer upon entering repayment under the NextGen plan. Here’s a closer look at the five announced:
- EdFinancial: This provider has been in the student loan industry for more than a quarter-century and is based in Tennessee, the home state of Sen. Lamar Alexander (R), who chairs the chamber’s Health, Education, Labor and Pensions Committee.
- F.H. Cann & Associates: Established in 1999, the firm already helps the Education Department with customer support and call center operations for Federal Family Education Loans. However, Betsy Mayotte, the president of The Institute of Student Loan Advisors nonprofit, wrote on Twitter that this choice surprised her, given her past unsuccessful dealings with the firm.
- Maximus Federal: Like F.H. Cann & Associates, Maximus is another veteran government contractor, serving the Education Department and 30-plus other federal departments and agencies. As Oberg noted, though, it’s also the subject of an “unflattering” 2020 article published by the U.C. Irvine Law Review.
- MOHELA: Sometimes, no news is good news, as MOHELA was absent from the latest report by the Consumer Financial Protection Bureau’s student loan ombudsman. The same could be said for EdFinancial.
- Trellis Company: A nonprofit, Trellis Company named MOHELA executive Scott Giles as its CEO in 2018. For its part, Trellis put out an informative report on the struggles of parent PLUS loan borrowers in January.
The June 24 announcement revealed that the five new student loan servicers will start working with the department immediately, graduating to servicing loans once they’ve met cybersecurity standards. Oberg pointed out in his analysis that it’s possible these new servicers will subcontract operations to existing servicers until they’re up to speed, though that may not be necessary now that existing loan servicers will be around through at least 2021.
Also, because NextGen student loan servicing promises to be a full-service platform (complete with a virtual assistant named “Aidan” and other new tools), the borrower-student loan servicer relationship may very likely diminish in stature.
Unlike in the past, all borrowers will manage their repayment in one place and should receive consistent information, no matter their servicer. In fact, as Brown noted in his blog post, you can now call 1-800-4-FED-AID to be routed to your loan servicer.
The centralized tool will also help the government keep servicers accountable, DeVos said in the June announcement. The department has struggled to maintain servicer compliance in the past, according to a 2019 report from the Office of Inspector General.
The list of federal loan servicers isn’t set in stone. According to Oberg, besides the fact that the Department of Education could award more contracts, it appears existing servicers won’t lose their spot without a fight.
Nelnet, for example, has been told by the department that it won’t receive a contract for NextGen student loan servicing’s business and technology components. Reporting the developments, Nebraska’s Lincoln Journal Star newspaper quoted Nelnet’s CEO as saying he would “pursue every legal avenue available” as a remedy.
If you have federal student loans currently serviced by Nelnet or Great Lakes (or Navient or FedLoan, for that matter), you could be assigned a new student loan servicer by the end of 2021. Stay on top of your debt if that happens by tracking down your new servicer.
Meanwhile, the Education Department has said that federal loan borrowers will be given “lots of advance notice” about the transfer of accounts.
“When the time comes to transition your account into the Next Gen environment, you’ll receive emails, messaging on social media and a wide array of other communications about what to expect and how to continue to manage your account,” Brown wrote. “For now, there’s no impact to how your federal student loans are serviced.”