Borrowers may anticipate further changes — and possibly some potholes — on the path to repaying their student loan debt as long as student loan forgiveness is still uncertain.
The US Education Department (ED) has released new servicing agreements for outstanding student loans as part of the Biden administration’s improvements to the student forgiveness system.
Navigating the Changing Landscape of Student Loan Servicing
The new contracts will ultimately be better for borrowers, according to Education Department representatives, because they would encourage greater customer service and increase accountability.
Five businesses will take over student debt servicing as part of the revamp. The fifth, Central Research, Inc., is new to working with the government, while the other four already have contracts with the Education Department to service student loans.
While some borrowers’ debts have already been shifted to other servicers, others may yet have their loans transferred to Central Research.
The further firms are:
- FedLoan Servicing’s loans were taken up by MOHELA last year.
- Advantage’s operator, Maximus Education, acquired some Navient Direct student loans.
- Great Lakes Higher Education’s loans were taken over by Nelnet.
- EdFinancial.
Although the ED stated that these reforms would ultimately help borrowers, some difficulties are anticipated along the way, according to experts.
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Challenges and Calls for Reform
Once contracts are transferred, for instance, payments could not be paid immediately. This can lead to unexpected late fines.
The Consumer Financial Protection Bureau discovered in 2015 that changes in loan ownership cause borrowers to lose payments, have problems completing paperwork, have records go missing, and even incur late fees.
When MOHELA took over servicing of several loans from the public service in 2022, those same issues still existed.
In order to better weather the conclusion of the payment freeze, some activists have urged for the Department of Education to make significant reforms to the student loan system before payments resume.
Although the Biden administration has made significant announcements to improve the process of repaying student debts, many elements of the system remain the same as they were prior to the pandemic, when more than 1 million students were defaulting on their loans every year.
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