As the Biden administration seeks to reform the struggling student loan industry, FedLoan’s 8.5 million loan portfolio will be split and split over the coming year among four other providers: Mohela, Navient, Nelnet and Edfinancial Services.
FedLoan, the target of thousands of complaints from clients of student borrowers, said this summer it would stop handling loans next month, but part of its service business could extend until 2022.
The manager, who is part of the Pennsylvania Higher Education Assistance Agency (PHEAA), now plans to stop managing federal student loans by December 2022, PHEAA spokesman Keith New said Thursday. “We are receiving instructions to transfer certain lots [of loans] to other service providers, ”New said. There have been a few small transfers of loans out of the FedLoan portfolio and larger transfers “should be transparent”.
Tens of millions of borrowers are expected to resume their loan repayments on February 1 after an extended pandemic-induced hiatus. Experts fear trouble, as borrowers – who owe more than $ 1,000 billion in federal student loans – may not be prepared and two of the biggest service providers, FedLoan and Navient, have said they will pull out of the service sector.
Mike Pierce, executive director of the Student Borrower Protection Center, a nonprofit advocacy group, said the Education Department was “stuck” both by the delay in resuming payments and by the need for new services for the FedLoan and Navient portfolios. “They’re trying to find out if these borrowers have a place to go,” Pierce said.
The state agency has accepted the one-year federal extension for an orderly transition of borrowers to new services, PHEAA’s New said. His statement on Wednesday identified services that would take parts of FedLoan’s portfolio. Edfinancial Services is based in Knoxville, Tenn .; Mohela in St. Louis, Missouri; and Nelnet in Lincoln, Neb.
The PHEAA also said Navient, headquartered in Wilmington, would be part of the group. Navient, however, said he would be stepping down from the business. On October 20, Navient’s contract with the Department of Education was taken over by Maximus, a federal contractor from Reston, Virginia. Navient referred the questions to Maximus on Thursday. Maximus referred the questions to the Education Department, which could not be reached for comment on the veterans holiday.
What is still unresolved is what companies will pay for serving borrowers under the oft-criticized civil service loan forgiveness program which is being revamped and is part of the program. FedLoan wallet. Student borrowers working in government or nonprofit organizations can qualify for loan forgiveness after 120 payments. But critics say few people qualify for loan forgiveness.
In April, James Steeley, CEO of PHEAA, was grilled by U.S. Senator Elizabeth Warren (D., Mass.) During a hearing on federal loan officers.
Warren, who chairs the subcommittee, claimed that prosecutions and investigations by attorneys general have shown that the PHEAA “consistently underestimates” borrower payments, resulting in rejection rates for those trying to qualify for the loan. loan forgiveness program. Of the 225,000 borrowers who requested cancellation of their loans at that time, only 2% had their loans canceled, Warren said.
The PHEAA doesn’t underestimate payments, Steeley told Warren. The high rejection rate was due to people not making enough payments to qualify for the pardon. “We strive every day to do our best for the people of Pennsylvania, for the customers we serve,” he told Warren.
READ MORE: Is FedLoan, the US student loan services giant, strapped for cash?
Richard Cordray, a senior education ministry official who heads the student loan operation, said in a letter to borrowers on Nov. 8 that the government would make it easier to get a rebate.
“Our new approach will add months or years of service credit for a large number of student loan borrowers by counting certain payments that were not eligible. In some cases, borrowers will get full loan forgiveness based on the changes, ”Cordray said in the letter.
“Please understand that complex changes of this magnitude are difficult to process and execute. They require large-scale data and processing work, which takes time, ”Cordray added. “FSA does a lot of this work with FedLoan Servicing. We are jointly responsible for making sure the job is done right. “
The extension of the PHEAA / FedLoan contract was necessary for the continuity and changes to the rebate program, said Anna Helhoski, student loans expert at NerdWallet, a personal finance blog.
As part of the civil service review, “borrowers who were not previously eligible or who were not in the correct payment plan should resubmit immediately,” Helhoski said.
“As long as you certify your employment, you can take advantage of the waiver. But you have to submit the forms by October 2022, ”she said.