What Happens if Your Student Loan Servicer Stops Servicing Loans?

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Two major federal student loan servicers, Pennsylvania Higher Education Assistance Agency (FedLoan) and Granite State Management and Resources, recently announced they don't intend to renew their contracts to continue to service federal student loans after December 2021.

If you have student loans with either servicer, you may be wondering what will happen to your loans. Here's what you need to know.

What Do Federal Student Loan Servicers Do?

When you take out federal student loans, the federal government is your lender. But instead of collecting payments and handling other loan services, the Department of Education contracts with financial institutions to service them.

Like traditional lenders, student loan servicers receive monthly payments from borrowers and report them to the credit bureaus. Additionally, they help borrowers choose and move to different payment plans when necessary, manage deferments and forbearances, certify eligibility for loan forgiveness programs and income-driven repayment plans, collect on defaulted loans and more.

What Happens to My Loans When My Servicer Quits?

It's not uncommon for a federal student loan servicer to decline to renew its contract. In 2020, CornerStone, Great Lakes and Nelnet all announced that they would stop servicing federal student loans after their current contract expired. In 2014, Sallie Mae stopped servicing federal student loans by spinning off its federal contract into a company called Navient.

When a federal student loan servicer declines to renew its contract, its portfolio of loans is transferred to another servicer. Roughly 10 million student loan borrowers will have their loans moved as a result of the FedLoan and Granite State Management and Resources contracts ending.

The Department of Education has yet to provide concrete details about when these transfers will take effect and where individual borrowers' loans will be moved. However, possible options include these other loan servicers that continue to work with the Department of Education:

  • Higher Education Servicing Corporation (HESC)/EdFinancial
  • Missouri Higher Education Loan Authority (MOHELA)
  • Navient
  • Oklahoma Student Loan Authority (OSLA) Servicing
  • Educational Computer Systems, Inc (ECSI)

How to Protect Your Credit During the Transition Period

Federal student loan payments, interest and collections are currently suspended through January 31, 2022. If your loan is moved to a different servicer before that time, you should receive a communication from your new servicer on how to set up your monthly payments in order to avoid missing your first payment with your new loan servicer.

If it's not moved over by the time payments resume, continue to make payments on your debt with your current servicer until your loans are transferred.

If you're concerned about a lack of communication from your new servicer, you can find out who services your loans by logging in to your Federal Student Aid account. Once you access your account, you'll find the information you need by clicking on "My Aid" on your dashboard, then "View loan servicer details." Alternatively, you can call the Federal Student Aid Information Center at 800-433-3243.

It's important to note that even if your student loan servicer changes, the terms of your loan remain the same. Expect the same payment amount and payment terms.

If you're working toward loan forgiveness, consider reaching out to your new servicer to make sure that you're still on the right track and your progress has moved with your loans.

If it appears that your loans haven't been transferred properly, don't hesitate to contact your new servicer to discuss a fix.

What to Do if Incorrect Information About Your Student Loans Gets Reported to the Credit Bureaus

As the Department of Education and Federal Student Aid Office manage the transfer of millions of loans to new servicers, mistakes may occur.

In the event that incorrect information about your student loans gets reported to the credit bureaus, it's important to respond quickly to avoid lasting damage to your credit score. If information you believe to be inaccurate shows up on your credit report, you can dispute it directly with the appropriate credit bureau.

To submit a dispute with Experian, start by visiting the Experian Dispute Center and indicating your reason for the dispute. In some cases, you may be prompted to provide documentation to support your assertion. You'll then confirm the details and submit your request. Once your dispute is opened, the request is commonly resolved within 30 days. During that time, the credit bureau may contact the creditors that reported the information to verify the information you're disputing. Depending on what the investigation determines, the information will be updated, deleted or remain the same. If the information found in your credit report is accurate, disputing it won't result in a removal.

To better keep track of what's in your credit report, consider using Experian's free credit monitoring service. In addition to offering you free access to your Experian credit report and FICO® Score powered by Experian data, you'll get real-time alerts about updates to your credit report, such as new inquiries and accounts or changes to your personal information.

As you make an effort to stay on top of your credit, you'll be in a better position to respond to potential issues as they arise and avoid letting inaccurate and even fraudulent information from causing long-term damage.

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Personal credit report disputes cannot be submitted through Ask Experian. To dispute information in your personal credit report, simply follow the instructions provided with it. Your personal credit report includes appropriate contact information including a website address, toll-free telephone number and mailing address.

To submit a dispute online visit Experian's Dispute Center. If you have a current copy of your personal credit report, simply enter the report number where indicated, and follow the instructions provided. If you do not have a current personal report, Experian will provide a free copy when you submit the information requested. Additionally, you may obtain a free copy of your report once a week through April 2022 at AnnualCreditReport.