The pandemic-related pause on federal student loan payments, which began in March 2020, has been crucial to helping borrowers through a period of economic turmoil. When the pause ends, many borrowers will have to contend with financial challenges and an often confusing repayment system. These difficulties can be amplified by the departure of three federal student loan employees, a change that will force millions of borrowers to work with new employees as they make payments, change repayment plans or seek help when needed.
Now, the Ministry of Education and providers should take steps to reduce problems in account transfer and restart the process by improving communication with borrowers, ensuring that recruitment of servants is sufficient to meet borrowers’ needs, and putting in place safeguards to protect borrowers, particularly those whose loans have been converted into employees. new ones.
Last year, two loan providers — Granite State (New Hampshire Higher Education Loan Corp.) and FedLoan Service (Pennsylvania Higher Education Assistance Agency, or PHEAA) — announced that they would not seek to extend their Department of Education contracts. A third company, Navient, announced a plan in late September that would shift its services portfolio to another company.
Servants cited various reasons, including a desire to focus on higher education initiatives within their own countries, as well as concerns that the costs and complexity of their business models were no longer sustainable. Federal Student Aid officials have suggested that upcoming changes to performance accountability standards in service contracts may also affect servants’ decisions to leave the market.
The conversion process for some borrowers has already begun. In September 2021, the department announced that accounts previously served by Granite State would be transferred to EdFinancial, a federal student loan services company based in Tennessee. Officials said the borrowers will be transferred in installments, and the changes are expected to be complete by the end of 2021. To help, EdFinancial has created a website with information on what affected borrowers can expect in the coming months.
Borrowers’ accounts are also transferred from FedLoan. The department announced that a small group of providers, including the Missouri Higher Education Loan Authority (MOHELA), EdFinancial and Nelnet, will receive the accounts. FedLoan was the only server responsible for administering the Federal Program for Public Service Loan Tolerance (PSLF), which has documented challenges in recent years as the first group of borrowers approached the tolerance threshold.
In December 2021, the department announced that MOHELA would take over the PSLF programme. Borrowers seeking loan forgiveness will remain with FedLoan until they are transferred sometime in 2022.
Under a special agreement approved by the department, Navient will move the entire federal student loan service process — including employees — to Maximus, a service that previously only worked with distressed borrowers before sending their accounts to collections. This transfer differs from other transfers in that it involves the transfer of a full service process rather than just the accounts of the borrowers.
The operation did indeed lead to some confusion among borrowers, in part because they received calls from an entity called “Aidvantage,” the newly created loan service arm of Maximus, rather than from Maximus itself.
Researchers who analyzed previous large-scale student loan account transfers found that the changes can create obstacles to long-term repayment success. In early 2010, management decided not to renew the contract with Affiliated Computer Services (ACS). By 2013, most ACS accounts had been converted to new services. As detailed in reports from the Consumer Financial Protection Bureau and more recent non-governmental analysis, these transfers have created problems for borrowers and workers alike. Borrowers reported incorrect balance and payment information while servicers reported missing or incomplete contact information for different accounts.
This history underscores the complexity and confusion of the account transfer process for borrowers and student loan providers. Avoiding borrower confusion will be a major challenge for both the Department of Education and Services.
To prepare for potential issues, the federal government must ensure that the borrower’s communications are clear and that protections are in place to correct any errors that occur during the process. In addition, borrowers must be protected from undue penalties. To achieve these goals, the department must:
- Create mechanisms to assist borrowers with transferred accounts. Systems must be able to quickly identify and resolve problems that arise as part of the transition. If a problem is identified, borrowers should be given a grace period or an automatic forbearance while the department and service provider investigate the problem. The administration can also set up a borrower hotline and a dedicated email address for those whose loans are being transferred.
- Improve communication with borrowers. Information on loan transfers must be clear, actionable and timely. Principles of behavioral economics can assist the department in guiding information and guidance. Information on account transfers should identify both the new company and, if possible, the specific entity that will communicate with borrowers about making payments. References to the Department of Education or Federal Student Aid should appear prominently in each communication.
- Provide additional support to service providers. Since the conversion process may cause confusion for the borrower, management should work to increase the resources and support to serve the employees. It should also ensure that recently announced accountability standards are implemented to ensure providers are well prepared for both restarts and account transfers, and are able to clearly communicate important information about both to borrowers.
Travis Plunkett is the Senior Director of the Family Economic Stability Portfolio, Reagan Fitzgerald is the Director, and Brian Denton and John Remedios are Senior Associates with the Pew Charitable Trusts Project on Student Borrower Success.