By Winston Berkman-Breen | July 14, 2021
On July 8, 2021, the Pennsylvania Higher Education Assistance Agency (PHEAA), which operates under the name FedLoan Servicing as one of the largest servicers for federal student loans, announced that it would not continue its servicing contract with the U.S. Department of Education past its current expiration date of December 14, 2021. This means that accounts for 8.5 million federal student loan borrowers will have to be transferred to a new servicer in a few short months. Additionally, unless the Biden Administration takes action to extend the payment pause on federal student loans, this large transfer will take place just after payments for tens of millions of borrowers are expected to resume at the end of September. The next servicer to which each borrower will be directed may be one of the handful currently contracted with the Department, and it is possible that not every borrower will be directed to the same new servicer.
Since PHEAA is also the sole administrator for both the Public Service Loan Forgiveness (PSLF) and Teacher Education Assistance for College and Higher Education (TEACH) Grant programs, which have each been riddled with problems, this transfer could create another major obstacle to loan relief for millions of borrowers in public service careers.
But this change will not only affect borrowers pursuing PSLF or TEACH Grants. It will have key implications for all borrowers whose servicer is currently PHEAA. The last time that the Department of Education transferred borrowers from one servicer to others on a similarly large scale, it uncovered existing servicing mistakes and also led to new errors that continue to harm borrowers today.
In response to last week’s announcement, the SBPC published a list of key questions that the Department of Education must answer for borrowers about PHEAA’s exit. But even before the government responds there are important steps that borrowers should take immediately.
What does this mean for borrowers whose loans are with PHEAA/FedLoan?
If you are a borrower whose loans are serviced by PHEAA, operating as FedLoan, your accounts will be transferred to another servicer. PHEAA has publicly committed to working beyond December 14th to ensure a smooth transfer, but with a transfer of this size and in an industry notorious for poor customer service, there is the risk of errors arising that could create problems with your account in the future, or complicate any problem you’re currently experiencing.
Additionally, if you have currently-pending income-driven repayment or PSLF applications, or if you apply in the coming months, your pending application may be transferred to and finished by a new servicer if PHEAA does not make a determination in time.
At some point before the transfer, we expect that PHEAA will send notices to borrowers with more information about what to expect, but here are the three things every borrower with loans serviced by PHEAA should do to protect themselves during the transfer of accounts. As you take these steps, make sure you obtain documentation for the status of any pending applications or complaints, and file a complaint if they are not resolved or are complicated by the transfer.
- Update contact information. You should expect notices from PHEAA over the coming months, and from your new servicer once one is assigned. These will provide important information about what to expect and whom to contact at either servicer with questions. To ensure you receive updates in real time, confirm that PHEAA has your accurate contact information, and if any of your contact information changes, be sure to update it promptly. You can do this through your online loan account or by contacting PHEAA.
- Keep a complete copy of your account records. In case there are any lost records or disputes with future servicers, you should keep a copy of your complete account records to date in a safe place. This is especially important if you are pursuing Public Service Loan Forgiveness; make sure you have copies of all payments and filed Employment Certification Forms. To ensure you have a complete copy, you should both download your payment history and everything else that’s available on your online loan account, and contact PHEAA as soon as possible to request that the company send you a complete copy of your loan records, since some loan records may not be readily available on your online account.
- File a complaint at the first sign of a problem. All loan servicers, including PHEAA, have a responsibility to be responsive to borrowers, to be knowledgeable and professional, and to maintain accurate records. If you experience an issue with PHEAA or with your new servicer, you should immediately file a complaint with the Department of Education. You can also file complaints with the Consumer Financial Protection Bureau and with your state’s attorney general. Issues may range from the servicer refusing to provide records, refusing to acknowledge past payments, or falsely claiming ineligibility for repayment or debt forgiveness programs. If you have any outstanding requests or complaints with your servicer, call to ask for an update and take notes on what was discussed. If the issue still isn’t resolved, file a complaint and include your notes from the call. Especially given the monumental nature of this account transfer, you should not wait to file a complaint if you experience an issue with your account or servicer.
There is still a lot that we do not know about how the transfer of accounts from PHEAA to a new servicer or servicers will work, and how any change in servicing will coincide with when repayment resumes or with the call for student loan debt cancellation. Taking these simple steps, staying aware of any updates, and looking out for and reporting scammers, will put borrowers in a good position to navigate whatever changes take place.
Winston Berkman-Breen is the Deputy Director of Advocacy & Policy Counsel at the Student Borrower Protection Center. Prior to joining the SBPC, Winston was the Director of Consumer Advocacy and Student Loan Advocate at the New York State Department of Financial Services.