Who's Who with Student Loans
Updated: Jan 20, 2022
It can be difficult to comprehend the student loan industry. When applying for financial aid, attending school, or after graduation,little information about how it works, or which repayment choices,is available. Here's a rundown of the various parties involved and how they interact with one another and with you.
Department Of Education – Federal Student Loan Lender
The money came from the Department of Education when you, the BORROWER, went to school and filed for federal loans. This means that the Department of Education is the LENDER of your loans. If you don't enroll in an alternate program, you'll be put on a normal 10-year payback schedule after a 6-month grace period that begins when you graduate or leave school.
The National Student Loan Data System stores all of your loan information. The National Student Loan Data System (NSLDS) "is a national database of information concerning student loans and grants given under Title IV of the Higher Education Act (HEA) of 1965." From aid approval to disbursement, repayment, deferment, default, and closure, NSLDS delivers a single, integrated picture of Title IV loans and grants throughout their entire life cycle."
Your loans are assigned to a private bank by the Education Department, which manages your repayment scheme and reports all pertinent information to the NSLDS. Your "LOAN SERVICER" is the name of the bank.
What Loan Servicers Do
A loan servicer is a private bank that is responsible for billing and other services on your federal student loan on behalf of the Department of Education and reporting that information to the National Student Loan Data System (NSLDS).
A creditor on your consumer credit report providing information about your payment history back to a credit reporting agency can be compared to this connection. (For example, a Bank of America credit card payment (your SERVICER) being reported to Equifax or Transunion) (NSLDS).
Your loan servicer is NOT a part of the Department of Education but accepts payments and assists borrowers to enroll in repayment programs.
Understanding Loan Servicer Transfers
The DOE may need to shift loans from one servicer to another in some instances. FedLoan, for example, is the only federal loan servicer that processes PSLF applications, which enable student loan forgiveness, as well as the processing of employment certification forms. Your loans will be immediately transferred to FedLoan after your PSLF application has been processed.
Your federal student loans will continue to be owned by the Education Department, even if they are transferred from one servicer to another. The term "transfer" simply refers to a new servicer providing you with the assistance you need to fully repay your loans.
Potential Conflicts of Servicer Interests
The issue with this dynamic is that private banks are in the business of collecting interest and payments for as long as possible, not in the business of helping you through making decisions and tracking the optimum repayment scheme for each individual borrower. Errors in reporting, just like in consumer credit reporting, can (and do) happen.
Borrowers' primary reported complaint about servicers is that when they call their allocated servicer, they receive erroneous information about their loans. There were also problems with how their payments were handled and reported to the NSLDS. So unfortunately, when those borrowers applied for forgiveness at the end of their program, reporting errors were a major cause of denial for discharge.
Several student loan servicing organizations have been sued and accused by states such as Pennsylvania and New York, as well as the Consumer Financial Protection Bureau.
The Consumer Financial Protection Bureau ("CFPB") sued Navient Corporation ("Navient"), Navient Solutions, Inc., and Pioneer Credit Recovery, Inc. in 2017 for alleged predatory lending practices, alleging that the companies steered borrowers into forbearance instead of discussing income-driven repayment ("IDR") plans.
Also, PHEAA, doing business as FedLoan Servicing, was sued by Massachusetts Attorney General Maura Healey in 2017 for misleading activities that led public employees to lose benefits and financial aid under two federal programs.
After the Department of Education's inspector general condemned the agency for failing to take action against PHEAA / FedLoan and other servicers for their problems, New York Attorney General Letitia James sued PHEAA in 2019.
You can choose to manage your loan repayment directly with your servicer bank. But if you do, it is imperative that you realize that you are solely responsible for figuring out how your program functions, as well as monitoring and complying with regulatory changes.
You will also need to submit, track, and verify the accuracy of your loan repayment records, as well as archive your annual paperwork as documentation for when you file for discharge at the end of your 10- to 25 year repayment plan.
If you feel you do not have the time or desire to handle this on your own, you also have the option of enlisting the expertise of professional assistance.
Third Party Assistance - Paying for the Help You Need vs. Getting Scammed
Consider what would happen if a tax preparation firm advised you that the only way to collect your tax refund was to pay them to prepare and file your return. The truth is that you can submit your taxes for free, as most people are aware.
Many people, however, find the process of researching, computing, and filing their own taxes to be complex and time-consuming, so they engage a tax professional, go to a local tax preparation store, or pay for THIRD PARTY ASSISTANCE in the form of tax software.
They may find that the service pays for itself in terms of saved time and irritation. They may even owe less in taxes as a result of that company's skill, more than offsetting the tax preparation cost they choose to pay.
Similarly, credible student loan aid firms exist to assist borrowers in evaluating their repayment alternatives and applying for the program that best meets their circumstances.
It's acceptable if you want to pay someone for help to avoid the hassle of filling out your own student loan documents and monitoring your own case file, knowing that you have the option of doing so for free.
There are legitimate private firms that are not linked with the Department of Education that can give you support, knowledge, and up-to-date information about the loan servicer's services. They can also assist in the monitoring and prevention of reporting problems, allowing you to avoid costly blunders when it comes to repaying your student loans..
Whether you manage your account directly with your servicer or engage third-party help, you are solely responsible for the outcome, just as you are for your taxes. Regardless of the option you select, at least you now know who is who in this industry.
Want assistance or have questions?
Call Edapt Student Services Customer Service at (800) 438-2869 right now if you have any problems or require assistance with your student loans.