A settlement related to Public Service Loan Forgiveness (PSLF) will increase transparency for applicants moving forward, and recent contract extensions for federal student loan servicers will come with more oversight and tougher standards for servicing companies. Here’s what you need to know about this week’s trends and how they could impact your student loans.
2 current trends within student loans for the week of Oct. 18, 2021
1. Major settlement reached in Public Service Loan Forgiveness lawsuit
The American Federation of Teachers (AFT) reached a settlement last Wednesday in Weingarten v. DeVos, a lawsuit addressing the issues that teachers face in getting the forgiveness they deserve through Public Service Loan Forgiveness (PSLF).
PSLF, which promises student loan forgiveness for public servants after 10 years of qualifying payments, has been notorious for its near-impossible acceptance due to the convoluted eligibility requirements. The settlement will require the U.S. Department of Education to:
- Reconsider denied PSLF applications upon the borrower’s request.
- Review all denied PSLF applications filed before November 2020 for borrowers who made 120 payments on a Direct Loan.
- Provide detailed communication to borrowers about why they were denied and how soon they can become eligible.
The settlement also discharges roughly $400,00 of student loan debt for eight AFT plaintiffs involved in the case.
How this affects student loans
The settlement comes after a series of major revisions to PSLF, which promise to increase accountability within the program and make forgiveness available to more borrowers over the next year.
AFT President Randi Weingarten stated that this settlement “gives muscle and teeth” to the Education Department’s reforms. Borrowers will now have more power to request reviews of their applications and receive detailed communication about their eligibility. This increased clarity could improve PSLF’s approval rates over time, especially if the Education Department continues to relax eligibility requirements.
2. Education Department extends contracts for six student loan companies
Last week, the U.S. Department of Education extended contracts for six federal servicers through 2023. But there’s a catch: The companies must subscribe to tougher standards or face consequences.
The six servicers offered contracts through 2023 are Great Lakes, Edfinancial, MOHELA, Nelnet, OSLA and Navient. All but Navient have signed their agreements; Navient has requested to transfer its contract to Maximus.
With the contracts come stricter standards for servicers, aimed at improving customer service and protecting borrowers from potential mismanagement. “[Federal Student Aid] is raising the bar for the level of service student loan borrowers will receive,” said FSA Chief Operating Officer Richard Cordray in a statement. “Our actions come at a critical time as we help borrowers prepare for loan payments to resume early next year.”
How this affects student loans
From now on, student loan servicers will be closely monitored by FSA to address issues, hold the companies accountable and enforce compliance with local, state and federal servicing laws and regulations. These stronger standards are a part of the Biden administration’s promise to reform the federal student loan lending system and ensure a smooth transition for borrowers when federal payments return in February 2022.
Borrowers who have loans serviced by Great Lakes, Edfinancial, MOHELA, Nelnet or OSLA should see no changes to their loans through 2023 now that the contracts have been extended. If you have complaints about your servicer, you can contact the Consumer Financial Protection Bureau or the FSA Ombudsman Group.
Here’s how you can get prepared
Whether you’re new to student loans or well into repayment, it’s wise to stay informed about how your student loan rates could change. As 2021 continues, more opportunities for cheaper loans or loan forgiveness could open up; keep an eye on the Bankrate student loans news hub for the latest trends.