Let’s all take a second to breathe a sigh of relief: Your student loan servicer will not be changing this year as originally thought.
We have seen so many changes and updates this year in the student loan world. It’s been a little hard to catch our breath … and then the federal government announced a mass student loan servicer change for the end of the year! How did we get here? Let’s take a look back.
What to Expect with Student Loans
Timeline of student loan changes in 2020
February 23, 2020: The first of the changes this year happened right before COVID-19 rocked the U.S.: The National Student Loan Data System website was the last to merge into StudentAid.gov, which then became the main hub for all federal financial aid resources.
Before this change, you had to go back and forth between three main websites to complete different steps and put your financial aid package together, making it a very confusing and time-consuming process. The merger into one site is a great improvement.
March 13, 2020: Amid escalating business closures, layoffs and economic hardships nationwide, President Trump declared that he waived “interest on all student loans held by federal government agencies […] until further notice.”
March 20, 2020: President Trump announced that student loan interest and payments for federal student loans can be paused for 60 days without penalty.
Education Secretary Betsy DeVos further clarified that borrowers would automatically have interest rates on federal student loans updated to 0% for at least that 60-day period. Further, the 60-day period for suspending student loan payments was optional, and borrowers would not be automatically enrolled into this forbearance, so borrowers would need to contact their federal loan servicers to ask for it.
March 27, 2020: The $2 trillion stimulus plan, the CARES Act, was signed into law by President Trump, which provided enormous relief to borrowers with federal student loans.
National student loan forbearance was implemented automatically for all federally held student loans until September 30, 2020, and borrowers had — and still have — the right to request a refund for any payments made between March 13 and September 30, 2020.
Other important provisions of the coronavirus student loan relief bill:
- The six months of suspended payments count toward loan forgiveness programs, including Public Service Loan Forgiveness (PSLF) and forgiveness from Income-Driven Repayment (PAYE, REPAYE, IBR) plans.
- No interest will accrue for six months until September 30, 2020, extending the Trump student loan interest freeze, which started March 13, 2020.
- Employers who contribute to their employees’ student loans receive a tax break, although that measure must be renewed in 2021 to be permanent.
- Borrowers in default will have their six months of suspended payments count toward the nine months needed for loan rehabilitation.
- No collection, wage garnishment or seizure of tax refunds will happen through September 30, retroactive to March 13, 2020.
Most recent changes to student loan servicing companies
June 24, 2020: A press release announced that the Department of Education’s Office of Federal Student Aid signed new contracts with five companies to service federal student loans starting in mid-December 2020.
The driving force behind this major change comes from the Department of Education’s goal to improve customer service and hold servicers more accountable for their performance in managing federal student loans. This news has definitely been what borrowers have been yearning for, and Education Secretary DeVos believes achieving this accountability starts with firing and replacing the previous four major servicers.
And if you didn’t already have change fatigue so far this year, more announcements were coming.
August 4, 2020: The chief operating officer of Federal Student Aid, Mark Brown, took to the Department of Education’s blog to calm the waters, explaining that even though the ED awarded these new servicer contracts, these companies won’t start doing this work immediately:
We’ve got to first put the tools, technology, and training in place to ensure that you get the right answer with every interaction.
To make sure there’s no interruption with your current loan servicer, we’ve made it possible to extend the servicing work for FedLoan Servicing (PHEAA), Great Lakes, Navient, and Nelnet through December 2021 and for CornerStone, Granite State – GSMR, HESC/Edfinancial, MOHELA, and OSLA Servicing through March 2022.
Overall, this is good news. The ED is working to improve the flawed federal student loan system and taking the time to make sure there will be a smooth transition. This gives us a second to breathe, which is good because there are still more changes to come this year.
Newest student loan changes by the Trump administration
August 8, 2020: President Trump ordered student loan interest and payments to be suspended for the rest of 2020 until December 31. The text of President Trump’s executive order states that the Secretary of Education will modify the terms of economic hardship deferment “to continue the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education until December 31, 2020.”
While that seems straightforward, it’s not. Linguistics are important here. There are some questions around whether these payments will count toward PSLF forgiveness or not, and whether the president can actually waive interest. So stay tuned for more clarification on this soon and check out Student Loan Planner’s analysis of President Trump’s executive order.
What to expect when you get a new federal student loan servicer in 2021
According to StudentAid.gov, you can expect the following to happen when you are assigned a new federal student loan servicing company in 2021:
- You’ll receive an email or a letter from your assigned servicer to inform you about the transfer.
- You’ll receive a welcome letter from the new servicer after the new servicer receives your loans. This notice will provide you with the new servicer’s contact information and inform you of the actions that you may need to take.
- All of your loan information will be transferred from your assigned servicer to your new servicer, but you may only be able to see online information that covers the period since your new servicer took your loans over.
There will be no change in the terms of your loans, and your previous loan servicer and new loan servicer will work together to make sure that all payments you make during the transfer process are credited to your loan account with the new servicer.
What to do when you receive a welcome letter from your new servicer
Student loans can bring with them a significant amount of anxiety. Getting a welcome letter from a new servicer can add a new layer of stress. Here’s what to do to ensure a smooth transition:
- Begin sending your loan payments to your new servicer. If you use a bank or bill-pay service to make your loan payments, update the new servicer’s contact information with the bank or bill-pay service.
- Follow the new servicer’s instructions for creating an online account so that you can easily communicate with the new servicer and keep track of your loan account.
You will determine the success of managing your student loan debt, not the government, your loan servicer or anything else. If you’re not sure about your student loan plan, we’ve got you! Contact us to get your student loan repayment plan mapped out now.