Buckle up – millions of borrowers who are on track for a key student loan forgiveness program for public service workers are about to be transferred to a new student loan service. Here’s what you need to know.
How the Federal Student Loans Service Works
A student loan manager is basically an agent or contractor hired by a lender to administer student loan accounts on their behalf. Usually, a student loan officer does not actually “own” the loan. Rather, it is an entity engaged to manage borrower accounts, communicate with borrowers, process payments, and review applications.
To administer its extensive federal student loan system, the US Department of Education contracts out service operations to several companies. But over the past two years, there have been major changes in the federal system for administering student loans. Several large loan managers have retired, while other loan managers have been recruited or have had their roles expanded. For example, Navient – one of the department’s main student loan managers – began withdrawing from the federal student aid system last year; the Department made the transfers of borrower accounts from Navient to Aidvantage – a new loan servicer – earlier this year.
Loan servicing transfers have always been disruptive to borrowers, and sometimes key borrower account information or records are lost in the reshuffle. Managing transfers can also be confusing for borrowers.
This year, that confusion can only be compounded by the nationwide suspension of outstanding payments on most federal student loans, which has been in effect for more than two years. Most federal borrowers have not had to make payments or contact their loan officer since March 2020. The payment pause is currently scheduled to end August 31, 2022, but could be extended.
A new student loans manager will support the PSLF program
The Pennsylvania Higher Education Assistance Agency (PHEAA) operates FedLoan Servicing, which has been a major contractor for the Department of Education. In particular, FedLoan Servicing is the government’s prime contractor to administer Public Service Loan Forgiveness (PSLF) – a key federal student loan forgiveness program that can enable borrowers to obtain forgiveness from their loans after 10 years of qualifying payments while working full-time for nonprofits or government organizations.
FedLoan announced last year that it would withdraw from the Department’s loan management system. His federal contract was due to expire in December, but FedLoan and the Department of Education reached an agreement to extend it until 2022 to allow for a smoother transition. Millions of borrowers who have FedLoan accounts have already had their loans transferred to several other loan servicers under contract with the Department such as EdFinancial and Nelnet
But borrowers on track for the PSLF have continued to stay with FedLoan, especially as the Department implements the Limited PSLF Waiver — a temporary initiative by the Biden administration that loosens PSLF rules and will allow the Department to education to retroactively count more eligible payments for borrowers, bringing millions closer to student loan forgiveness.
That’s about to change. On June 3, the Education Department confirmed that beginning this summer, PSLF borrowers will transfer from FedLoan to MOHELA, one of the Department’s other student loan servicers. MOHELA will take over the administration of the PSLF program.
“Beginning in early July, the first transfers of FedLoan Servicing Public Service Loan Forgiveness (PSLF) borrowers to MOHELA will take place,” the ministry said in a June 3 announcement. “These transfers will continue throughout the summer, and no action is required of you during this process.
What PSLF Borrowers Need to Know About Transferring Student Loan Servicing from FedLoan to MOHELA
According to the Ministry of Education, borrowers will receive multiple notices as transfers occur, both before and after the transfer.
The Department also says borrowers who have submitted PSLF certification forms or applications need not worry about disruptions.
“PSLF discharges for borrowers who meet all eligibility requirements will continue to occur during the transfer period,” the Department says. “If you first submitted a PSLF form after May 1, 2022, your form will be sent to MOHELA for processing after July 1, 2022. Once your PSLF form has been processed, your account will be transferred from your current provider to MOHELA. ”
Borrowers who obtain forgiveness of their loans under the PSLF before the transfer will not be transferred to MOHELA, according to the Department.
“Federal Student Aid is committed to keeping borrowers informed about the transition of the Public Service Loan Forgiveness Service (PSLF) from FedLoan Servicing to MOHELA,” said Richard Cordray, Chief Operating Officer of Federal Student Aid, in a Tweeter tuesday.
If you are unsure if your federal student loan officer has changed, you can get key information about your loan officer through your StudentAid.gov portal. In the meantime, borrowers should ensure that their contact details (including mailing address and email address) are up to date. It may also be a good idea to upload and retain key records and correspondence, such as payment histories, PSLF payment statements, and other important letters.
Further Reading on Student Loans
5 things borrowers should know about Biden’s $25 billion student loan forgiveness
Student loan pause: Biden officials hint at another extension, potentially tied to student loan forgiveness
560,000 borrowers will get automatic student loan forgiveness, but others can still apply for relief
Biden’s new student loan forgiveness changes could end up costing some borrowers