FedLoan Servicing Contract Expires: What to Expect for Your Student Loans for 2025

by Alex Hillsberg , MA

Student Finance & Loan Expert

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In July 2021, the Pennsylvania Higher Education Assistance Agency (PHEAA) announced the termination of its FedLoan Servicing contract with the U.S. Department of Education. By December 2021, the contract officially ended, resulting in the transfer of millions of borrowers to new loan servicers. If you are one of these borrowers and are uncertain about the future of your student loan, this article aims to provide insights into what you can expect to happen as your loan moves to a new servicer.

Key Things You Should Know About FedLoan Servicing

• FedLoan Servicing managed around 8.5 million federal student loans.
• FedLoan Servicing was the exclusive servicer for borrowers who qualified for Public Service Loan Forgiveness (PSLF).
• Borrowers previously serviced by FedLoan were distributed to four different loan servicers.

Table of Contents

1. Why did FedLoan Servicing end their contract?
2. How will the FedLoan Servicing contract change affect student loans?
3. How does the end of FedLoan Servicing contract impact PSLF?
4. What new servicers are taking over FedLoan’s accounts?
5. What steps should borrowers take during the FedLoan transition?
6. Who can I contact if I need help with my new loan servicer?
7. What repayment options are available after FedLoan Servicing contract expires?
8. Will the interest rates on loans change after the transition from FedLoan Servicing?
9. How does the change in loan servicer impact my credit score?
10. What are my alternative financing options if I’m a part-time student?
11. What new borrower protection measures are in place with the new loan servicers?
12. Could the loan servicer transition reshape my broader educational investment strategy?
13. What alternative education or training opportunities can improve financial resilience during the transition?
14. How do I file a complaint against FedLoan Servicing?
15. What are my options for urgent financial assistance during the loan transition?
16. What financial options are available during the transition for borrowers needing extra support?
17. What should future borrowers consider when planning for their education costs?
18. Should I pursue supplemental education to strengthen my financial resilience?
19. Is my personal information secure with the new loan servicers?
20. What happens to my cosigner responsibilities during the transition?
21. Can alternative education models help reduce my long-term financial burden?
22. Other Things You Should Know About FedLoan Servicing Contract

Why did FedLoan Servicing end their contract?

In a statement to the National Association of Student Financial Aid Administrators (NASFAA), PHEAA explained that the decision to end FedLoan Servicing's contract with the Department of Education was due to the increasing complexity and challenges of managing federal loan programs. These programs, overseen by the U.S. Department of Education, had become more demanding and costly to service. Moreover, ending the contract would allow PHEAA to refocus on its core mission within Pennsylvania.

How will the FedLoan Servicing contract expiration affect student loans?

The expiration of the FedLoan Servicing contract will reassign approximately 12% of borrowers to new loan servicers. This transition might cause temporary disruptions as borrowers adapt to new systems and procedures. However, the terms and conditions of your loan, as well as available loan forgiveness programs and repayment plans, will remain unchanged.

Furthermore, the temporary payment suspension and 0% interest benefits that borrowers receive due to the coronavirus pandemic will continue to be in effect. These forbearance measures are scheduled to expire at the end of January 2022. Considering the United States has the highest cost of college by country, even temporary provisions such as this offer a lot of relief.

How does the end of the FedLoan Servicing contract impact PSLF?

With the end of FedLoan Servicing's contract, all loans held by borrowers enrolled in the PSLF program were among the two million federal student loans transferred to MOHELA. This transition, effective May 1, 2022, and implemented by Federal Student Aid (FSA), does not impact the current terms, conditions, interest rates, loan discharge or forgiveness programs, or available repayment plans on the loans.

The PSLF program allows borrowers who spend 10 years in qualifying public service jobs, such as nursing, military, or nonprofit work, to have their remaining student loan balance forgiven after making 120 consecutive monthly payments. Considering how much tuition has increased in recent years, PSLF provides an invaluable benefit for borrowers. As of July 2022, MOHELA became the sole servicer overseeing this program.

What new servicers are taking over FedLoan’s accounts?

There currently are seven student loan servicers in contract with the FSA. FedLoan Servicing borrowers were transferred to the following:

• Edfinancial: Edfinancial Services is a student loan servicer that provides comprehensive loan management services, including repayment options, loan consolidation, and financial literacy resources. They aim to help borrowers navigate the complexities of student loan repayment and find the best solutions for their financial situations. Edfinancial works closely with borrowers to ensure they stay on track with their payments and understand their loan terms.

• MOHELA: Missouri Higher Education Loan Authority is a nonprofit student loan servicer that manages federal student loans, including the administration of the PSLF and Teacher Education Assistance for College and Higher Education (TEACH) Grant programs. MOHELA offers various repayment plans, borrower support, and financial education tools to assist borrowers in successfully managing their loans. Their focus is on providing personalized service to help borrowers achieve financial wellness.
• Aidvantage: Aidvantage is a federal student loan servicer that handles loan repayments, consolidations, and customer service for borrowers with federal student aid. They are committed to helping borrowers understand their repayment options and manage their loans effectively. Aidvantage provides support and resources to ensure borrowers can make informed decisions about their loan repayment strategies.
• Nelnet: Nelnet is a student loan servicer that offers a wide range of services, including loan repayment management, consolidation, and borrower support. They provide various repayment plans and tools to help borrowers stay informed and in control of their student loans. Nelnet is dedicated to assisting borrowers in finding the best repayment solutions to fit their financial needs and goals.

What steps should borrowers take during the FedLoan transition?

At least two weeks before any loan transfer, your current loan servicer will send an email or letter notifying you that your loans are being transferred to another loan servicer. This initial notice will include your new servicer’s name and contact information. During the transition from FedLoan Servicing to your new servicer, you should take the following steps:

• Monitor communications: Keep an eye on your email for updates from the FSA, FedLoan Servicing, and the new servicer regarding the transfer process. Expect three key notices—an email from FSA explaining the transfer, a transfer notice from FedLoan Servicing at least 15 days before the transfer, and a welcome notice from the new servicer once the transfer is complete.
• Update contact information: Ensure your contact information is up-to-date with FedLoan Servicing to receive all necessary notifications.
• Create an account with the new servicer: Once you receive the welcome notice from the new servicer, create an online account to manage your loan and track your student loan payment progress.
• Verify loan details: After the transfer, log in to your new servicer account to verify that all your loan details, payment history, payment programs, forbearance or deferment, and qualifying payments are accurately reflected.
• Set up payment: Once you receive confirmation that the transfer is complete, update your bank or bill pay service with your new servicer's name, address, and your new account number, especially if you prefer autopay.
• Download records: Download and save a copy of your payment history and any important documents from your FedLoan Servicing account before the transfer is complete.
• Stay informed: Keep informed about additional steps or requirements by regularly checking the FSA and your new servicer’s websites.
• Address incomplete PSLF forms: If you have an incomplete PSLF form, submit the necessary information to FedLoan Servicing to ensure your form can be processed before the transfer.

Who can I contact if I need help with my new loan servicer?

If you need help with your new loan servicer, contact them directly if you notice any discrepancies, such as changes to your interest rate or repayment plan. To reach out to your new servicer, you can either go to their official website or check the email you received from them for their contact details. You can also call them directly through the following numbers:

• MOHELA: 1-888-866-4352
• Aidvantage: 1-800-722-1300
• Edfinancial: 1-855-337-6884
• Nelnet: 1-888-486-4722

If issues persist after contacting your servicer, you can submit a complaint directly to the U.S. Department of Education’s Office of Federal Student Aid for further assistance and information about student loan servicers.

What repayment options are available after the FedLoan Servicing contract expires?

After the FedLoan Servicing contract expires, borrowers can still access various repayment options for their federal student loans. These options include:

• Standard Repayment Plan: Fixed monthly payments over up to 10 years.
• Graduated Repayment Plan: Payments start low and gradually increase, typically every two years, for up to 10 years.
• Extended Repayment Plan: Fixed or graduated payments over up to 25 years, available to borrowers with over $30,000 in federal student loan debt.
• Income-Sensitive Repayment Plan: Monthly payments are based on annual income, with the plan lasting up to 15 years, available for Federal Family Education Loan (FFEL) Program loans.
• Income-Driven Repayment Plans: Income-Driven Repayment Plans (IDR) adjust monthly federal student loan payments based on the borrower's income and family size, making them more affordable. These plans include REPAYE, PAYE, IBR, and ICR, each recalculating payments annually and offering potential loan forgiveness after 20 to 25 years of qualifying payments.

Will the interest rates on loans change after the transition from FedLoan Servicing?

No, the interest rates on your loans will not change after the transition from FedLoan Servicing to the new loan servicers. Even if you ask on average how long does it take to pay off student loans and the answer is it can reach up to 20 years but the terms, conditions, and interest rates established in your original loan agreement will remain the same. This ensures that the benefits you were initially entitled to, such as your interest rate, are maintained during and after the transition. If you notice any discrepancies, contact your new loan servicer immediately to resolve the issue.

Additionally, if your loan is transferred before August 31, 2022, you will continue to benefit from the coronavirus forbearance and 0% interest rate until they expire. Once the forbearance period ends, you will make payments to your new servicer.

Regardless of how much a bachelor's degree or a graduate degree costs, both are subjected to specific interest rates depending on the type of loan taken. Below are more specific details regarding federal student loan interest rates.

How does the change in loan servicer impact my credit score?

The change in loan servicer should not directly impact your credit score, as it is primarily an administrative change. Your loan terms, repayment history, and account status will be transferred to the new servicer. However, to ensure there are no indirect effects on your credit score, consider the following steps:

• Monitor your credit report: Regularly check your credit report to ensure that the loan transfer is accurately reflected and there are no errors.
• Keep making payments: Continue making your loan payments on time to avoid any negative impact on your credit score during the transition.
• Verify loan details: After the transfer, verify that all your loan details, including payment history and account status, are correctly updated with the new servicer.

If you notice any discrepancies or issues, contact your new loan servicer immediately to resolve them and prevent any potential negative impact on your credit score. Moreover, here is an example of how a credit servicing company calculates credit scores:

What are my alternative financing options if I’m a part-time student?

For part-time students facing unique financial challenges during transitional periods, supplementing federal aid with alternative financing options can provide critical support. Evaluate diverse resources tailored to flexible academic and work schedules. In addition to standard federal programs, research competitive rates and repayment structures offered by private student loans for part-time students to determine how these solutions can complement your financial planning while pursuing higher education.

What new borrower protection measures are in place with the new loan servicers?

The new servicers have implemented advanced safeguards aimed at enhancing accountability and reducing recurring issues. These include streamlined dispute resolution processes, robust customer support channels, and comprehensive digital tools that provide real-time access to account activity and detailed transaction logs. Enhanced oversight by Federal Student Aid and independent regulatory bodies further ensures that service standards are maintained. Borrowers also benefit from increased transparency, helping them make informed financial decisions and explore academic pathways through resources like best majors.

Could the loan servicer transition reshape my broader educational investment strategy?

This transition period is an opportunity for borrowers to reassess long-term educational and career plans while aligning financing strategies with future academic goals. Evaluate alternative pathways and emerging trends to determine how best to invest in your education. Consider exploring financial counseling and academic advising for personalized strategy adjustments. In addition, staying informed on industry debates—such as whether are online graduate degrees respected—can help ensure that new educational investments complement your career progression.

What alternative education or training opportunities can improve financial resilience during the transition?

In addition to refining personal financial strategies, borrowers may consider enhancing their skill set through short-term, career-focused education. Upskilling not only increases earning potential but also helps mitigate the financial pressures associated with loan repayment transitions. For instance, targeted certificate programs are designed to equip individuals with industry-relevant skills in a condensed timeframe. Leveraging options like 6-month programs can offer a practical pathway to gain new competencies that align with current job market demands. This approach encourages a proactive stance in navigating both professional growth and financial stability during periods of administrative change.

How do I file a complaint against FedLoan Servicing?

To file a complaint against FedLoan Servicing, follow these steps:

• Contact PHEAA Directly: Start by reaching out to the mother company of FedLoan Servicing to address your issue directly. They can be contacted via phone or through their online portal.
• Submit a Complaint to the FSA Ombudsman Group: If your issue is not resolved through FedLoan Servicing, you can escalate your complaint to the FSA Ombudsman Group. They specialize in resolving disputes related to federal student aid.
• File a Complaint with the CFPB: You can also submit a complaint to the CFPB, which oversees financial institutions and services, including student loan servicers. Visit the CFPB's website to file your complaint online.
• Contact Your State Attorney General: If you believe FedLoan Servicing has violated state laws, consider filing a complaint with your state's attorney general's office.

What are my options for urgent financial assistance during the loan transition?

In situations where unexpected cash flow disruptions occur during the transfer process, borrowers may need immediate financial support to cover essential expenses. Exploring emergency funding options such as fast-approval programs can help bridge short-term gaps without altering existing repayment conditions. For instance, some institutions offer a same day student loan solution that may provide rapid financial relief. Borrowers should evaluate these options carefully and consult with financial professionals to ensure the chosen solution fits their strategic financial planning.

What financial options are available during the transition for borrowers needing extra support?

Navigating repayment obligations can be particularly stressful for borrowers experiencing financial challenges during the transition from FedLoan Servicing. While the terms of existing loans remain unchanged, some borrowers might consider exploring financial options such as deferment, forbearance, or income-driven repayment plans to ease the burden of monthly payments. Assessing these alternatives is critical, especially during adjustment periods for a new loan servicer.

Additionally, if meeting living expenses becomes a challenge while managing loan repayments, students or recent graduates could consider applying for additional student loans for living expenses. These loans can help cover essential costs not encompassed by tuition, such as housing, groceries, or transportation, providing temporary financial relief. However, it’s crucial to fully understand the repayment terms and ongoing financial obligations before committing to any new loan product.

For personalized advice, borrowers should directly contact their new loan servicer or consult financial counselors available through their educational institutions. These steps can help identify the best financial strategy during the transition process.

What should future borrowers consider when planning for their education costs?

Making informed financial decisions is critical for students planning their education, especially as the cost of higher education continues to rise. For those considering advanced degrees, such as veterinary medicine, addressing key questions about tuition and associated expenses can help minimize long-term financial strain. Prospective borrowers should thoroughly research their intended programs, taking into account not only tuition but also additional costs like living expenses, materials, and exam fees.

Understanding financing options is equally crucial. Federal student loans, scholarships, and grants often provide better terms compared to private loans, but careful budgeting is needed to determine how well these resources align with projected costs. Additionally, students should explore specific guides on educational costs, like how much does vet school cost for vet students, in order to gauge the potential financial commitment involved in such specialized fields. Mapping out short- and long-term repayment strategies, including eligibility for loan forgiveness programs, can also provide a clearer financial outlook.

Finally, students and their families are encouraged to consult financial advisers or use online calculators to prepare for repayment scenarios. Long-term planning, cost transparency, and an understanding of available resources can significantly ease the financial burden of higher education, ensuring a smoother transition to loan repayment upon graduation.

Should I pursue supplemental education to strengthen my financial resilience?

Recent transitions offer an opportunity to re-examine long-term career strategies and address emerging skill gaps. Borrowers may benefit from exploring targeted short-term academic programs that enhance job prospects and contribute to sustainable financial planning. Pursuing options such as the top 6 month associate degree online can serve as a pragmatic approach to immediate career advancement, offering both affordability and flexibility during uncertain periods. Evaluate available credential programs and integrate outcomes with professional development plans to ensure alignment with evolving market demands while concurrently managing student loan responsibilities.

What do borrowers say about FedLoan Servicing contract expiration?

• FedLoan Servicing provided clear guidance on my loan repayment, which I appreciated. However, I often faced delays and errors in processing my payments. I hope the new servicer will offer the same helpful information without the administrative issues. Whitney
• I found FedLoan's customer service responsive and supportive, especially when navigating the PSLF program. Unfortunately, there were frequent mistakes in my account statements. I'm optimistic that the new servicer will maintain the support while improving accuracy. Jessica
• FedLoan Servicing was instrumental in guiding me through the Public Service Loan Forgiveness process. Their knowledgeable and friendly representatives made everything easier. I look forward to experiencing the same, if not better, quality of service with the new provider. Lachlan

Is my personal information secure with the new loan servicers?

New servicers are required to meet rigorous federal data protection standards that emphasize encryption, routine security audits, and comprehensive privacy policies to safeguard borrowers’ sensitive information. It is advisable for borrowers to familiarize themselves with these policies and adopt secure online practices for added protection. Moreover, evaluating servicer credibility can be as strategic as choosing educational investments like a low cost master degree online to ensure long-term financial stability.

What happens to my cosigner responsibilities during the transition?

Borrowers with co-signers should review their loan documents carefully as the transition may affect the administrative handling of co-signer obligations. New servicers might implement distinct processes regarding co-sign approval and release timelines, which could differ from previous arrangements. It is advisable to verify updated terms with your new loan servicer and seek clarity on any changes in co-signer responsibilities. For additional guidance on managing co-signer dynamics in the current environment, please refer to student loan cosigner release.

Can alternative education models help reduce my long-term financial burden?

Evaluating cost-effective education alternatives can help mitigate long-term debt risks associated with higher tuition costs and evolving loan servicing landscapes. Borrowers may consider exploring options such as accredited online programs and community colleges, which often offer competitive tuition rates and flexible scheduling to better align with financial planning objectives. Leveraging resources like cheapest online colleges that accept FAFSA allows prospective students to identify viable pathways that reduce overall costs while maintaining academic standards. This strategic approach facilitates a balanced educational investment and supports sustainable personal finance management during and beyond the loan transition process.

Key Findings

• Approximately 8.5 million federal student loans previously managed by FedLoan Servicing were transferred to new loan servicers.
• Borrowers transferred to new servicers will continue to benefit from the coronavirus forbearance and 0% interest rate until these provisions expire.
• Before the change in loan servicer from FedLoan Servicing, CFPB documented more than 11,500 complaints related to federal student loan servicing.
• Approximately 18% of complaints about federal loan servicers are related to issues with borrower communication.
• FedLoan Servicing was the exclusive servicer for borrowers in the PSLF program. With the end of its contract, these loans were transferred to MOHELA as of July 2022.

Other Things You Should Know About FedLoan Servicing Contract

What did FedLoan Servicing turn into?

FedLoan Servicing, operated by the PHEAA, did not turn into another entity but instead ceased servicing federal student loans as of December 2021. Its accounts were transferred to other loan servicers, including MOHELA, Aidvantage, Edfinancial, and Nelnet. This transition was part of an effort by the U.S. Department of Education to improve loan servicing standards and support for borrowers whether they are paying for private university or public university education.

Can I still contact FedLoan servicing?

Because FedLoan Servicing is no longer managing federal student loans, borrowers who had their loans serviced by FedLoan are now expected to contact their new loan servicer for any inquiries or issues. If you need historical information or have unresolved issues, you may still reach out to PHEAA, the parent organization of FedLoan Servicing.

Will FedLoan be forgiven?

FedLoan Servicing itself is not subject to forgiveness; rather, it was a loan servicer that managed accounts for federal student loans. Loan forgiveness pertains to the borrowers' loans, not the servicer. Programs like PSLF, which help offset college tuition costs, continue under new servicers, and eligible borrowers can still apply for forgiveness under the terms of their original loan agreements.

Are there any benefits for borrowers after changing servicers?

The transition from FedLoan Servicing to new servicers aims to provide enhanced customer service and support for borrowers. The new servicers, like MOHELA and Aidvantage, have been selected based on their ability to meet higher standards for performance, transparency, and accountability. Additionally, borrowers may experience improved communication and more efficient handling of their accounts.

What should borrowers do if their loan details are not accurately transferred?

If borrowers notice discrepancies in their loan details after the transfer, they should immediately contact their new loan servicer to address the issues. It's essential to verify all account information, including payment history and loan terms. Borrowers can also monitor their credit reports for any inaccuracies and file a dispute if necessary. If the issue remains unresolved, they can escalate the complaint to the Federal Student Aid Ombudsman Group for further assistance.

References:

• CFPB. (2017, June). Staying on track while giving back: The cost of student loan servicing breakdowns for people serving their communities. Consumer Financial Protection Bureau. Retrieved July 30, 2024.
• FICO. (n.d.). What's in my FICO® Scores?. myFICO. Retrieved July 30, 2024.
• FSA. (2022, December 14). Public service loan forgiveness program transitioning from FedLoan servicing to MOHELA (Updated Dec. 14, 2022). Federal Student Aid. Retrieved July 30, 2024.
• FSA. (2024, July). Income-driven repayment plans. Federal Student Aid. Retrieved July 30, 2024.
• FSA. (2024). Interest rates and fees for federal student loans. Federal Student Aid. Retrieved July 30, 2024.
• Hanson, M. (2023, September 25). Average time to pay off student loans [2023]: Data analysis. Education Data Initiative. Retrieved July 30, 2024.
• U.S. GAO. (2023, August 30). As student loan payment pause ends, income-driven repayment plans may help borrowers. U.S. Government Accountability Office. Retrieved July 30, 2024.