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Last week, the Pennsylvania Higher Education Assistance Authority (PHEAA), whose federal direct loan management wing operates as FedLoan Servicing, announcement that he would not renew his contract with the US Department of Education. FedLoan Servicing is one of the Ministry’s leading contracted student loan service providers, managing over 8.5 million individual borrower accounts. FedLoan’s contract with the Ministry is due to expire in December.

FedLoan Servicing’s abrupt departure from the Department of Education’s sprawling federal student loan system is likely to disrupt millions of student loan borrowers, who will see their accounts transferred to a new loan manager in the coming months (the or which specific managers will take over FedLoan accounts has not yet been determined). Transfers of services by third parties under contract with the Ministry of Education have historically did not go particularly well.

What is perhaps of more concern to borrowers, however, is that FedLoan Servicing was the primary agent responsible for administering the Public Service Loan Forgiveness Program (PSLF). Under FedLoan’s leadership, the PSLF program has been plagued by dismal approval rates and numerous irregularities, leading to Congressional inquiries and lawsuits.

Borrowers on the right track for the PSLF may understandably be concerned about what to expect. Here’s what you need to know.

The FedLoan service will be gone, but the civil service loan forgiveness program will still be there

The fact that FedLoan Servicing is withdrawing from the business of managing student loans has no impact on the existence of the Public Service Loan Forgiveness Program (PSLF). The PSLF is a program established by enabling statute passed by Congress and signed by President Bush in 2007. Its existence is not tied to a specific student loan manager, who is simply an entrepreneur acting on behalf of the US Department of Education. FedLoan Servicing actually does not own any of the student loans it manages – he is, in effect, a mere federal government agent who has been hired to handle billing operations and administer federal loan programs on his behalf.

Transferring to a new student loan manager could get complicated

As FedLoan Servicing goes out of business later this year, the Education Department will likely begin the process of transferring borrower accounts to its other contracted loan management companies. Student loan borrowers on track for the PSLF should be able to continue moving towards eventual loan forgiveness, even with the new loan manager.

However, the service of transfers can be confusing, as there is often no net or complete transfer of files from one student loan manager to another. Student loan borrowers on track for the PSLF should take action now to protect yourself against possible future disruptions by downloading and saving their payment histories and important correspondence, updating their contact details and monitoring their accounts and credit reports.

Dispute Resolution Process for Public Service Loan Remission May Change

While managing the PSLF program, FedLoan Servicing was accused of widespread irregularities in its determinations as to whether student loan borrowers had made eligible payments for the student loan forgiveness program. Senator Elizabeth Warren (D-MA) recently alleged during a Senate committee hearing that FedLoan Servicing “consistently underestimates” PSLF payments and that previous Department of Education audits found that PHEAA’s automated system created errors and disqualified in a way inappropriate PSLF payments.

Student loan borrowers have filed a slew of disputes with FedLoan Servicing over qualifying PSLF payments, and some borrowers have been waiting for a resolution for months or more. FedLoan Servicing may not have much of an interest in resolving these disputes before going out of business later this year, and its ability to resolve these disputes may decline as its employees gradually leave to find new employment. .

Student loan borrowers may therefore need to submit new disputes with their new student loan manager after the transfer. Alternatively, borrowers could escalate their existing disputes at any time with the US Department of Education by submitting formal complaints to Federal Student Aid. Feedback system or that of the Department of the ombudsman Desk.

Are loan forgiveness reforms in the civil service coming?

Given the well-documented problems associated with the management of the PSLF program, the abrupt departure of FedLoan Servicing is likely to accelerate calls for widespread reform of the PSLF. Earlier this year, more than 100 student loan advocacy groups sent a letter to Education Secretary Miguel Cardona, urging him to use the emergency authority to conduct a 90-day audit of the PSLF program and automatically cancel student loan debt for all borrowers who have completed ten years or more public service, regardless of their specific compliance with the complicated eligibility conditions of the PSLF program.

Advocacy groups and Congressional Democrats have also called on the Biden administration to extend the current break on most federal student loan payments, which is currently scheduled to end on September 30, until programs like the PSLF can be corrected. With the recent announcement of FedLoan Servicing, such an extension seems more likely, but the Biden administration has yet to make a decision.

Further reading

Huge upheaval in student loan management: this important loan manager terminates his contract

Elizabeth Warren in Biden: Extending Student Loan Break Until 2022 or Later

Your student loan manager is changing: 7 steps to protect yourself now

New Federal Report: Student Loan Managers Often Hate Borrowers Who Request Forgiveness Of Public Service Loan

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