What's Going on with Federal Loan Servicers?

November 16, 2021

Updated 11/28/22: Since this blog post was published, payments and interest on federally-held student loans are now set to resume 60 days after a court decision on President Biden’s forgiveness program. If no decision has been issued by June 30th, 2023, payments will resume 60 days later.

There have been a lot of developments in the federal student loan space recently, including major updates to federal loan servicers. But there have also been a lot of last-minute updates to previously announced changes, meaning there’s plenty to keep track of in order to stay up to date.

Before we dig into what’s new, let’s first break down what a federal loan servicer is and what it does. Federal loan servicers are private companies contracted by the Department of Education to handle billing, enrollment in repayment plans, and more on federally held student loans. Put simply, your loan servicer is the company that you make loan payments to whereas the Department of Education is the entity that issued or guaranteed your loan.

OK, now back to those changes. Over the coming months and years, millions of borrowers will have their loans transferred to new loan servicers. The Department of Education has also announced an update to its approach to collections on defaulted loans and new standards for loan servicers.

With the payment freeze coming to an end on January 31, 2022, here’s what you need to know about the latest changes with federal loan servicers.

Three Big Exits

Earlier this year, three major federal loan servicers—FedLoan Servicing, Granite State Management & Resources, and Navient—announced that they would be ending their contracts with the Department of Education. But there’s been some back and forth around when exactly each servicer would stop working with the federal government.

Here are the updated timelines following recent negotiations between the Department of Education and the servicers: 

  • FedLoan will continue servicing loans through December 2022
  • Granite State will stop servicing loans by the end of December 2021
  • Navient will service loans though December 2023

This means that between the end of 2021 and 2023, nearly 16 million borrowers will have their loans transferred to a new servicer. That’s nearly 40% of all borrowers with federal loans. 

If your loans are currently handled by any of these servicers, the first thing you should do is update your contact information (email, phone, mailing address) so that the servicer(s) can get in touch with you regarding any changes. Next, you should download all statements and documents related to your loan(s) for your personal records. In the event that the transfer doesn’t go seamlessly—which does happen unfortunately—these documents can help as you’re working to resolve the situation. 

Lastly, you should still make payments on your loans to your current servicer until you’re told that your loans have been transferred. And remember: getting a new loan servicer will not affect your access to federal loan programs nor will it change your monthly payment. 

End of Private Collection Contracts

FedLoan, Granite State, and Navient aren’t the only companies that are ending their relationship with the Department of Education. The Federal Student Aid office announced in early November that it was no longer working with private collection agencies to collect payments on defaulted loans. Instead, the office is working with five private contractors that are supposed to provide support to borrowers.

Given the current payment freeze, this change isn’t expected to have much of an impact in the short term. 

New Standards for Servicers

Federal loan servicers don’t have the greatest reputation, and there is no mystery as to why.

The Consumer Financial Protection Bureau released a report in 2015 detailing a number of failings within federal and private loan servicing. Four years later, nearly two dozen U.S. Senators called for an investigation into FedLoan’s handling of the Public Service Loan Forgiveness program due to accusations of mismanagement. Plus, there’s the matter of non-stop phone calls from servicers trying to collect past due payments.

In October, the Department of Education’s Federal Student Aid office issued new standards for loan servicers that aim to create a better experience for borrowers. These include measuring servicers’ interactions with borrowers, their effectiveness at preventing borrowers from falling behind on payments, as well as requiring servicers to increase the availability of their customer service representatives.

These new standards will go into effect in 2022, just as payments are set to resume. And we’ll continue to monitor what’s happening with federal loan servicers in the event that any additional changes are announced.

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