The federal student loan servicing organization will cease operations. What you should know

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IMPORTANT POINTS

The Pennsylvania Higher Education Assistance Agency has stated that it would cease servicing federal student loans on behalf of the United States Department of Education.

The following is information that borrowers should be aware of about the change.

The Pennsylvania Higher Education Assistance Agency — which administers loans to 8.5 million student borrowers — said this week that it would not renew its contract with the federal government when it expires later this year.

Consumer groups praised the announcement, as PHEAA, a quasi-governmental student assistance agency established by the Pennsylvania General Assembly in 1963, has been accused of giving inaccurate information to borrowers and making it more difficult for them to seek relief programs.

According to current statistics, just around 5% of debtors who registered for the national public service loan forgiveness program, which PHEAA manages, were granted.

FedLoan is one of many organizations that the Education Department contracts to handle the government’s $1.59 trillion student loan portfolio.

“Student loan borrowers across the country, including millions of teachers and other public service employees, received welcome news that the Department of Education will no longer rely on a company accused of widespread mismanagement and abuse to manage millions of borrowers’ student loans,” said Seth Frotman, executive director of the Student Borrower Protection Center.

The government’s contract with PHEAA will expire on Dec. 14, 2021.

“In the 12 years since PHEAA accepted the terms of its federal servicing contract, the federal loan programs administered by the United States Department of Education have grown increasingly complex and difficult to service, while the cost of servicing those programs has risen dramatically,” said Keith New, a spokesman for PHEAA.

How the change affects borrowers

If PHEAA is presently servicing your federal student loans, you will be paired with a new lender, according to higher education expert Mark Kantrowitz.

You’ll want to verify that the new servicer has all of the proper information about you.

Due to a pandemic-era relief program, the majority of federal student loan borrowers do not have to make a payment on their student loans until October. However, when you restart payments, experts advise that you continue to make them to PHEAA until you learn of your new lender.

This is especially critical for debtors seeking public service loan forgiveness, since each payment takes them closer to the 120 payments necessary to obtain debt forgiveness. Keeping track of your payments might also help safeguard you.

“Borrowers should maintain a spreadsheet that details each payment, including the date, the amount, the repayment plan, and the qualifying employment,” Kantrowitz added. “If any issues arise, this spreadsheet will assist in addressing them.”

If you’re dissatisfied with your new servicer, you may change it by merging your federal loans. However, doing so may result in a reset of your repayment schedule,” he said. “As a result, if you’re seeking public service debt forgiveness, I strongly advise against this.”

Additionally, Kantrowitz noted that the majority of federal student loan servicers operate similarly. “Changing service providers may be like to leaping from a frying pan into a fire, with no discernible benefit.”

Borrowers who have difficulties with their servicer could still register a complaint with the Consumer Financial Protection Bureau.

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