3 Ways Having a Single Federal Loan Servicer Might Actually Help You

student loan servicer

You may be skeptical of the federal government’s ability to hold one company accountable for over a trillion dollars worth of student loans belonging to more than 42 million borrowers.

If you are, you’re not alone. Since Secretary of Education Betsy DeVos’ Wall Street Journal op-ed in May, detractors have cautioned against her plan to go from nine federal student loan servicers to one.

It will create a “trillion-dollar bank,” said Natalia Abrams, executive director of Student Debt Crisis, in a USA Today interview. An institution so large may exert its influence on the government, not the other way around.

But, would a student loan system with a single servicer be all that bad? Maybe not. Here are three benefits to consider:

3 benefits of a single federal student loan servicer

Keep in mind that your student loan servicer and lender are not the same. Knowing the difference between your servicer and lender is important.

Here are a few pros to having just one student loan servicer.

1. Simpler account management

You didn’t get to choose a servicer when you took out federal loans in the first place. It was assigned to you when you took out your first loan. So over the course of your college career, you likely ended up with many debts and many student loan servicers, some of them better than others.

DeVos’ plan would pool your servicers into one. And supposedly, she and the DOE will also award their exclusive servicing contract to the best possible one, which is good news if you hate your current servicer.

This would mean logging into one online platform (instead of a few or more) to manage your loans and make a combined, monthly payment. Maybe this saves you a couple minutes or hours every month. There’s a lot to be said for having one login for all your loans.

It also means you wouldn’t have your servicer switched on you at a moment’s notice. There literally wouldn’t be another servicer that your loans could be transferred to, ending this common source of confusion.

Sure, there would be growing pains in moving your loans to a new federal loan servicer. But getting past that initial transition could pave the way for two more direct borrower benefits.

2. Improved customer service

The DOE will be reviewing servicers’ contract proposals through July. In a fact sheet released by the DOE, DeVos said she will be looking for servicers to achieve the following:

  • Faster response times to borrowers’ calls, emails, and applications
  • Improved method for how payments are applied to loan balances
  • Simpler notices from the servicer to borrowers

As part of their pitch to DeVos, contending student loan servicers may seek to mimic some of the best refinancing banks, which have refinancing applications that take three or fewer minutes. At the least, these large loan servicers may be well served to include a transparent payment system.

If your payments only went toward interest in the past, for example, a more intuitive payment application tool could help. You could start to see your actual loan balance decrease.

Perhaps you have received poor federal loan service from your company since leaving campus — maybe it was slow, maybe it was misleading. DeVos would make the case that better service from one servicer would make your life easier. This would be true whether you’re trying to get a representative on the phone or make a payment online.

3. More effective government oversight

The Department of Education has had difficulty managing its current roster of federal loan servicers.

Navient, a contender for the exclusive contract, has faced lawsuits over accusations of misleading its borrowers. It even infamously said in court documents that “there is no expectation that the servicer will act in the interest of the consumer.”

The Trump administration has shown little support for the Consumer Financial Protection Bureau, which lodged one of the lawsuits against Navient. But DeVos promised that a single federal loan servicer would allow the federal government to focus its efforts on borrowers and improve their experiences with the servicer.

By having fewer servicers (or vendors, as you may hear DeVos call them), the federal government would have less red tape to cut past. As simple as it sounds, having eight fewer servicers would allow the DOE’s Federal Student Aid office to prioritize monitoring just one.

Don’t take a single federal student loan servicer at face value

Temper each of these potential benefits with this passed-down truth: Things aren’t always as they seem, especially when they come out of Washington.

DeVos says, for example, that having a single federal loan servicer would improve “communication by simplifying notices to borrowers.” What that actually means is open to interpretation.

The Washington Post reported that under DeVos’ simpler system, your student loan servicer would no longer be required to remind you to recertify an income-driven repayment (IDR) plan before the deadline.

Still, a single student loan servicer could still mean easier account management, better customer service, and better oversight for you and your loans.

Just don’t take these potential benefits at face value. No matter how many servicers are out in the world, it’s up to you to educate yourself about the best path forward, whether that’s considering IDR options or looking into consolidation and refinancing.

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