Student loan servicers sometimes change because of actions taken by the borrower or because of actions taken by the lender. Learn how and why this happens and what you can do about it.
Reasons Why Borrowers Want a Change in Student Loan Servicer
There are several reasons why a borrower might initiate a change in their student loan servicer.
Often, a borrower wants to switch their student loan servicer because they dislike their current student loan servicer or the borrower experienced a problem with the servicer.
Common complaints concern customer service conflicts, such as:
- The loan servicer was not helpful
- The servicer is unwilling or unable to provide financial relief, such as reducing the interest rate or amount owed
- The loan servicer did not offer certain options to the borrower, such as deferments, forbearances, income-driven repayment and other repayment plans
- The loans servicer misled the borrower
- The loan servicer did not process loan payments according to the borrower’s instructions, such as applying extra payments to a specific loan or just to the principal balance of the loans
- The loan servicer did not provide the borrower with information about their loans, such as payment options, due dates and other key terms and conditions
How Borrowers Can Change their Student Loan Servicer
When a borrower consolidates their federal student loans, they can choose a new student loan servicer.
Borrowers can also change their loan servicer by refinancing their student loans to a new lender that uses a different student loan servicer.
When a borrower files an Employment Certification Form (ECF) or applies to Public Service Loan Forgiveness, their loans will be transferred to the servicer that specializes in loan forgiveness. This loan servicer is currently FedLoan Servicing.
When a borrower applies for a Total and Permanent Disability (TPD) Discharge, their loans will be transferred to the servicer that specializes in disability discharges. This loan servicer is currently Nelnet.
When a borrower files for bankruptcy, even if they are not seeking to discharge their federal student loans in bankruptcy, their loans will be transferred to the servicer that specializes in bankruptcy cases. This loan servicer is currently ECMC.
Other Reasons Why the Student Loan Servicer Might Change
Don’t be surprised if your student loan servicer changes for reasons beyond your control.
A borrower’s student loan servicer might change if the servicer’s contract with the U.S. Department of Education is not renewed or if a new servicer is added. Servicing contracts currently last five years, but can be renewed.
The U.S. Department of Education also tries to ensure that all of a borrower’s federal student loans, including both undergraduate and graduate loans, are with the same servicer. If some of a borrower’s loans are with a different servicer, the U.S. Department of Education might change the servicer on those loans. This is called serialization.
Current federal loan servicers
In June 2020, the U.S. Department of Education announced that it had signed contracts with five new servicers as part of the Next Generation Financial Services Environment (Next Gen). Next Gen will provide a single web and telephone interface for all of the loan servicers through a centralized loan servicing platform. Next Gen also intends to provide improved accountability and better-quality customer service.
Two of the new servicers – EdFinancial Services LLC and Missouri Higher Education Loan Authority (MOHELA) – are currently servicers in the Direct Loan program. The other three servicers — F.H. Cann & Associates LLC, MAXIMUM Federal Services Inc. and Texas Guaranteed Student Loan Corporation (Trellis Company) – have not previously participated in the Direct Loan program.
The current servicing contracts will expire in December 2021 or March 2022:
- December 2021: Great Lakes Educational Loan Services, Nelnet, Navient and FedLoan Servicing (PHEAA)
- March 2022: Edfinancial Services LLC, Granite State (GSMR), MOHELA and Oklahoma Student Loan Authority (OSLA)
One additional servicer, CornerStone, terminated its contract with the U.S. Department of Education in late 2020 for financial reasons. Utah Higher Education Assistance Authority (UHEAA) operates CornerStone.
The set of servicers might change, however, as the Biden Administration reviews actions taken by the Trump Administration. The five new servicers may lack the servicing capacity of the previous nine student loan servicers. Also, some of the servicers may challenge the decisions by Secretary DeVos.
Congress Changes Loan Servicing Requirements
The Consolidated Appropriations Act, 2021, included several changes concerning student loan servicing requirements.
The allocation of student loan borrowers to servicers is based on the servicer’s past performance and compliance with U.S. Department of Education rules. In particular, if a servicer has ongoing problems complying with these rules, contract requirements and consumer protection laws, the U.S. Department of Education is required to transfer the borrowers to a new servicer.
The U.S. Department of Education must provide loan servicers with incentives to provide more support to borrowers who are at risk of defaulting on their federal student loans.
Borrowers must be allowed to change their student loans servicer when they consolidate their federal education loans. They currently can change their servicer through consolidation, but this change encodes the requirement into law.
Next Gen must involve more than just one servicer and the servicers must contract directly with the U.S. Department of Education instead of serving as subcontractors to a single servicer.
The U.S. Department of Education must publish periodic reports about the performance of the student loan servicers.
Cautions about Changes in Student Loan Servicers
When a borrower’s student loan servicer changes, there is a standard process for the transfer of loans to the new servicer.
- The old servicer will send advanced notice of the change in servicer to the borrower
- The old servicer transfers the loans to the new servicer
- The new servicer will provide the borrower with a welcome notice after the transfer is complete
It may take 1-2 weeks for the National Student Loan Data System (NSLDS) on StudentAid.gov to reflect a change in servicer. Borrowers who have questions about a change in servicer can call NSLDS Customer Support Center at 1-800-999-8219.
The old servicer will forward any payments you send to the old servicer after the transfer for a few months.
A change in the student loan servicer does not affect the terms and conditions of your loans, just who manages the loans and where you send the payments. You won’t need to reapply for deferments and forbearances, as loan status information and repayment plans will be transferred.
Steps you can take
However, borrowers should take a few steps to ensure a smooth transition.
- Get a copy of your payment history from the old loan servicer.
- Save a copy of your correspondence with the old servicer, especially anything that concerns the amount owed, the crediting of payments, eligibility for repayment benefits, and loan rehabilitation agreements.
- Check your credit reports before and after the change in servicing. Confirm that the new servicer reported your loan balances correctly. You can get a free copy of your credit reports from each of the three credit bureaus at annualcreditreport.com.
- Create a new username and password on the new servicer’s student loan servicing platform.
- If you signed up for AutoPay with the old servicer, where your bank automatically transferred loan payments to the loan servicer, you will need to sign a new AutoPay agreement with the new servicer.