How federal student loan servicing will change in 2021

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The U.S. Department of Education is taking steps to overhaul its loan servicing platform, a move that aims to improve the student loan repayment process for tens of millions of borrowers. The forthcoming changes include a centralized loan servicing platform for federal student loan borrowers and the introduction of new loan servicers to manage student loan accounts.

So, what do all of these changes mean for you? Sometime this year or next, you might start dealing with a new student loan servicer. You may also need to get used to a new online or mobile platform when you make payments or manage your student loans in other ways. But the specific details of your loans (e.g., balance, payment, interest rate, etc.) will remain the same.

What are student loan servicers?

Student loan servicers are companies that handle billing, customer support, repayment plans and other services for federal student loans. A loan servicer isn’t the lender you borrowed money from to finance your education. Rather, it’s a separate business that the U.S. Department of Education (ED) contracts to manage your account.

The current list of federal student loan servicers includes:

  • FedLoan Servicing (PHEAA).
  • Granite State – GSMR.
  • Great Lakes Educational Loan Services, Inc.
  • HESC/Edfinancial.
  • MOHELA.
  • Navient.
  • Nelnet.
  • OSLA Servicing.
  • ECSI.
  • Default Resolution Group (aka Maximus Federal Services, Inc.).

If you currently have an outstanding federal student loan, one of the companies above is likely assigned to your account. You can learn more about which loan servicer ED assigned to your account(s) by calling the Federal Student Aid Information Center (FSAIC) at 800-433-3243. Your loan servicer should also be listed on your credit reports.

Why are federal student loan servicers changing?

In 2020, the U.S. Department of Education introduced a plan to modernize technology at the office of Federal Student Aid and improve the overall experience for federal student loan borrowers. Former Education Secretary Betsy DeVos spearheaded the initiative, known as the Next Generation Financial Services Environment, or simply Next Gen.

Student loan borrowers currently work with one of nine different servicers on four different platforms, which experts say can lead to inconsistent experiences and confusion. The goal of Next Gen is to make student loan repayment less complicated for borrowers, parents and student aid partners alike with a single, centralized loan management system.

The initiative also aims to improve borrower outcomes, with fewer students experiencing delinquency and loan default. Next Gen’s new technology should also lead to fewer headaches for borrowers when student loan servicers change and fewer mistakes, like lost payments and other processing problems.

“The vision of federal student loan borrowers being able to engage with one interface rather than toggling between multiple servicers is sorely needed and will be well received by both current and future borrowers,” says Greg McBride, CFA, Bankrate chief financial analyst.

New student loan servicers

As part of the Next Gen initiative, the Education Department signed contracts with five companies to provide loan support and customer service to over 68 million student loan borrowers. The five new student loan servicers are as follows:

  • Edfinancial Services, LLC.
  • F.H. Cann & Associates, LLC.
  • MAXIMUS Federal Services, Inc.
  • Missouri Higher Education Loan Authority (MOHELA).
  • Texas Guaranteed Student Loan Corp.

When is the change happening?

The U.S. Department of Education (ED) has the authority to transfer your loans from one servicer to another at any time. Barring any changes, the Next Gen initiative should consolidate the number of federal student loan services sometime during 2022, as the current servicers have contracts lasting through 2021 or, in some cases, early 2022.

When your loan servicer does change to one of the new companies in the Next Gen environment, you can expect the following to occur:

  • Your new loan servicer will send you a letter or email to notify you of the transfer.
  • A welcome letter should show up in your mailbox once the new servicer receives your loan(s).
  • You’ll need to send future payments to your new loan servicer.

The new Next Gen centralized platform should also simplify this process significantly compared with the way loan transfers worked in the past.

What the change means for you

Though the program isn’t live, borrowers will find handling their loans easier with one centralized platform.

“It will be a seamless system,” says student loan expert Mark Kantrowitz. “[Borrowers are] simply going to interact through the same 1-800 number, get automatically routed to the right servicer and then they will interact with the website, which will look the same regardless of who your servicer is.”

Some growing pains are still to be expected. It’s unclear what will happen to the trillions of dollars of federal student loan debt already in circulation, but it’s to be expected that some borrowers might have to work with multiple servicers as the transition kicks off, says Lauren Anastasio, CFP at SoFi.

“Do not ignore mail that comes from a servicer that you don’t currently work with,” Anastasio says. “Notices could contain important information about who will contact you for information about your loans going forward.”

Can you change student loan servicers?

At the outset of your loan, you don’t get to have an input in who your student loan servicer will be. Instead, the Education Department assigns your loan servicer to you.

Under the current system, borrowers have sometimes had their loans split among more than one federal servicer. You can request to have a single servicer manage your loans when this occurs, but the Consumer Financial Protection Bureau mentioned in a 2015 note that different processing policies at each firm can make the transfer complicated.

You can also change your student loan servicer by consolidating your federal student loans. When you fill out an application for a new Direct Consolidation Loan on the Federal Student Aid website, you have the option to select a new servicer of your choice during the process.

Next steps

If you believe that your student loan servicer may change in late 2021 or early 2022, it’s important to stay alert regarding upcoming changes. Even before the change, borrowers still need to learn as much as they can about their loan terms and the servicer they’re working with. Missing payments or becoming delinquent on your loans can have severe consequences to your credit score and future borrowing opportunities. If you have any questions, you can contact your current servicer and ask about when potential changes could take effect.

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Written by
Michelle Black
Contributing writer
Michelle Lambright Black is a credit expert with over 19 years of experience, a freelance writer and a certified credit expert witness. In addition to writing for Bankrate, Michelle's work is featured with numerous publications including FICO, Experian, Forbes, U.S. News & World Report and Reader’s Digest, among others.
Edited by
Student loans editor