FedLoans, Granite State and Navient: Why are the loan servicers not renewing their contracts with the federal government?

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Three organizations are leaving the federal student loan servicing business to refocus on private student loans.

 

FedLoan Servicing, Navient Corp. and Granite State Management & Resources have acknowledged their plans amid the COVID-19 pandemic and the politically charged environment surrounding America’s $1.6 trillion of federal student loan debt carried by 43 million borrowers.

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Related: What is the maximum student loan amount for a lifetime?

A Case of Oversight and Revenue Loss

FedLoan Servicing, Navient and Granite State are leaving the federal student loan business largely because of economics and politics. Federal officials suspended federal student loan payments and interest in March 2020 in response to the pandemic, which affects a company’s ability to profit from federal student loan servicing fees.

 

Some U.S. legislators have also advocated for broad federal student loan debt cancellation, which, if it came to fruition, could diminish a loan servicing company’s bottom line.

 

Jack Remondi, president and CEO of Navient, said in September that his company planned to “focus on areas outside of government student loan servicing.” The company later issued investor documents saying that Navient could be affected by “damage to our reputation resulting from cyber-breaches, litigation, the politicization of student loan servicing, or other actions or factors.”

 

Navient has been the subject of Sen. Elizabeth Warren’s withering criticism and scrutiny by state attorneys general, and the company was likely to face increased regulatory oversight.

 

The Pennsylvania Higher Education Assistance Agency (PHEAA), a public corporation that conducts its student loan servicing operations nationally as FedLoan Servicing and American Education Services, informed the U.S. Department of Education in July 2021 that it “would not be accepting an extension to its current student loan servicing contract beyond what is needed to ensure a smooth transition for its borrowers,” according to its 2021 annual financial report.

 

The current FedLoan Servicing contract is set to expire on Dec. 14, 2021, thanks to fees that were “reduced” by the federal student loan payment holiday. PHEAA also suggested that broad federal student loan debt cancellation “could result in a significant decrease” in FedLoan’s servicing revenues.

 

FedLoan has also been the only servicer of federal student loans for the Public Service Loan Forgiveness program, whose 98% rejection rate of loan balance cancellation invited scrutiny. In October, the government announced plans to revamp the program and wipe out $1.74 billion in federal student loan holdings.

 

Granite State Management & Resources, a merged unit of the New Hampshire Higher Education Loan Corp., announced in July that its nonprofit foundation “will not seek or accept renewal of its federal student loan servicing contract” that expires on Dec. 31, 2021, in order to focus on its private student loan operations.

Who Is Replacing the Loan Servicers?

On Sept. 29, 2021, the Department of Education’s Federal Student Aid office announced that it would soon begin transferring some FedLoan borrowers to the Missouri Higher Education Loan Authority (MOHELA), while other FedLoan accounts would be transferred to other servicers yet to be determined.

 

The office also announced that Granite State had begun transferring borrowers to Edfinancial and that all transfers should be completed before the end of the year.

 

MOHELA has provided full-service loan servicing since the 1980s, and Edfinancial Services describes itself as a company with more than 25 years of experience in the student loan industry.

 

On Sept. 28, 2021, Navient and Maximus announced an agreement for Navient to transfer its federal student loan accounts to Maximus. The agreement, if approved by the Federal Student Aid office, is expected to be finalized this year.

What Does This Mean to Borrowers?

Nearly 16 million people are to send their federal student loan payments to new loan servicers after the automatic transfers: about 8.5 million borrowers with FedLoan, 6 million with Navient, and 1.3 million with Granite State.

 

The transfer of Granite State’s federal student loan portfolio to Edfinancial, and FedLoan’s to different servicers, including MOHELA, “will not impact the existing terms, conditions, interest rates, loan discharge or forgiveness programs, or available repayment plans on the loans,” Federal Student Aid announced. “It also will not change the temporary payment suspension and 0% interest benefits borrowers are currently receiving due to the coronavirus emergency.”

 

Borrowers also should expect no change to their existing federal student loan terms if the Navient-Maximus transfer is approved.

 

Any borrower affected by loan servicing transfers can expect to receive notifications from the Department of Education and their new loan servicer.

 

To check on your current student loan servicer, log in to your Federal Student Aid account or call 800-4-FED-AID (800-433-3243).

What Should Affected Borrowers Do?

Federal Student Aid is advising any borrower affected by the planned transfers to provide updated contact information to their outgoing loan servicing company to ensure that they receive important updates.

 

Borrowers also can do other things to prepare for the end of federal student loan relief on Jan. 31, 2022, the date set as the final extension of the payment and interest pause since the national forbearance went into effect retroactively on March 13, 2020.

 

When the federal student loan payment holiday ends, borrowers without a solid plan could face a financial cliff: More than 43 million Americans with federal student loans will need to resume payments, with interest, in February 2022.

Could It Be a Good Time to Refinance?

To avoid some of the confusion surrounding these outgoing federal student loan servicers, borrowers could consider refinancing. When you refinance with a private lender, you take out a private student loan that pays off your existing student loans.

 

The goal is to attain a better rate and have just one monthly payment. Even shaving 1% off a loan rate can add up to significant savings over time. Keep in mind that refinancing federally held student loans means giving up federal benefits like access to income-driven repayment plans and federal forbearance. But if your current interest rates are high or your loan balance is high, refinancing might pay off.

The Takeaway

FedLoan Servicing, Navient and Granite State plan to stop servicing federal student loans, alluding to politics and economics. After a major transition, 16 million affected borrowers and millions more will need to be ready to resume payments in February 2022 after the federal student loan payment holiday ends. Borrowers who want more control over their federal student loan debt — and who think they could qualify for a lower rate — may want to look into refinancing.

 

Learn more:

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

 

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS, PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE  FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

More from MediaFeed

How to Get Out of Student Loan Debt: 6 Options

 

Dealing with a substantial debt burden can be overwhelming. As you repay your debt, wondering the best way to get out of student loan debt is natural. You wouldn’t be the first one to wonder if there’s a way to get out of paying your student loans legally, like declaring bankruptcy.

 

The honest answer is that getting out of your student loans by declaring bankruptcy is pretty difficult. There are some other options that may help minimize the amount of money you pay back, like federal forgiveness programs or even options that can make monthly payments more affordable, such as income-driven repayment plans.

 

Related: Student loans: Consolidation vs. refinancing

 

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Depending on your eligibility, there are a few different loan forgiveness programs available to borrowers with federal student loans. These programs could help you get out of paying a portion of student loan debt as they forgive your loan balance after a certain number of years. Each forgiveness program has different eligibility criteria:

1. Teacher Loan Forgiveness

This federal student loan forgiveness program forgives the loans of highly qualified teachers. Depending on the subject area they teach, teachers who meet the eligibility requirements may have up to $17,500, or up to $5,000. Teachers are eligible to apply for this loan forgiveness program after they have completed five years of service.

2. Public Service Loan Forgiveness

This program is designed for those working in public service. In order to qualify for Public Services Loan Forgiveness (PSLF) applicants must meet the programs eligibility requirements, including:

  • Working for a qualified organization, including the U.S. federal, state, local or tribal government, or a qualified nonprofit organization
  • Work full time
  • Hold Direct Loans or have a Direct Consolidation Loan
  • Make 120 qualifying payments on an income-driven repayment plan

Borrowers who are interested in pursuing PSLF will have to follow strict requirements in order to qualify and have their loan balances forgiven. The Federal Student Aid website, operated by the U.S. Department of Education recommends that participants certify their employment at least annually, or every time they change jobs. This is to ensure that the borrower is still on track and making qualified payments. For more information, check out this overview of the Public Service Loan Forgiveness program.

 

designer491 / istockphoto

 

Income-driven repayment plans for federal student loans tie a borrower’s monthly loan payments to their income. Depending on the specific income-driven repayment plan you select, they may cap your monthly payments between 10% to 20% of your income, depending on eligibility.

 

The repayment period for income-driven repayment plans varies from 20 to 25 years, depending on the specific plan the borrower is enrolled in. Income-driven repayment plans help make loan payments affordable for borrowers. However, extending the loan terms may result in accruing more interest over the life of the loan than on another repayment plan.

 

At the end of the loan term, any remaining loan balance may be forgiven. Be mindful that the forgiven amount may be considered taxable income by the IRS.

 

fizkes / istockphoto

 

It may be possible to have federal student loans discharged if you have a permanent disability. But it’s still difficult to apply for a total and permanent disability discharge. You need to fill out forms and show the Department of Education that you are not able to earn an income now or in the future because of your disability.

 

To do so, you need to get an evaluation from a doctor, submit evidence from Veterans Affairs or show that you are receiving Social Security Disability Insurance. You cannot apply for disability discharge until you have been disabled for 60 months, unless a doctor writes a letter saying that your disability and inability to work will last at least 60 months.

 

Unfortunately, not all private student loans even give you the option to discharge your loans if you’re permanently disabled. If you’re permanently disabled and looking to get out of private loans, you may have to take your lender to court.

 

DepositPhotos.com

 

This option won’t eliminate student loan debt, but may be an option to consider for borrowers struggling to make monthly payments on their federal student loans. Forbearance and deferment both offer borrowers the ability to pause their payments, if they qualify.

 

Depending on the type of loan you have, interest may continue to accrue even while the loan is in deferment or forbearance. However, applying for one of these options can help borrowers avoid missed payments and potentially defaulting on their student loans. (Note that private student loans don’t offer the same benefits as federal student loans.)

 

designer491/istockphoto

 

Again, this option won’t get rid of your student loans, but it could help make student loans more affordable. By refinancing your debt, you can potentially qualify for a lower interest rate, which can possibly lower your monthly payments or save you money on interest over the life of your loan.

 

If you refinance with a private lender, you can also change the term length on your student loans. While private lenders can refinance both your federal and private student loans, you should know that in doing so, you lose some protections that federal student loans provide, like income-based repayment programs.

 

Photobuay / istockphoto

 

Bankruptcy is a legal option to clear debt. However, it is extremely rare that student loans are eligible for discharge in bankruptcy. In some instances, if a borrower can prove “undue hardship,” they may be able to have their student loans discharged in bankruptcy.

 

Filing for bankruptcy can have long-term impacts on an individual’s credit score and is generally a last resort. Before considering bankruptcy, review other options, such as speaking with a credit counselor or consulting with a qualified attorney who can provide advice specific to the individual’s personal situation.

 

DepositPhotos.com

 

It can be challenging to get out of paying student loan debt. It is only in extremely rare circumstances that student loans can be discharged in bankruptcy. For federal student loans, some options that can help alleviate the burden of student loan debt include deferment or forbearance, which may be helpful to those who are facing short-term issues repaying student loans. Another avenue to consider may be income-driven repayment plans which tie a borrower’s monthly loan payments to their income, which can help make monthly payments more manageable.

 

Refinancing could be another option to consider. Qualifying borrowers may be able to secure a more competitive interest rate which could result in less accrued interest over the life of the loan. This option won’t be right for all borrowers as refinancing federal student loans eliminates them from federal benefits and protections, such as deferment, forbearance, income-driven repayment plans and federal loan forgiveness programs.

 

Learn more:

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

 

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE  FOR MORE INFORMATION. 

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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