Education Department Announces 5 New Federal Loan Servicers
The Department of Education announced it signed contracts in June with five federal loan servicers that it hopes will bring the long-awaited Next Gen platform to fruition.
F.H. Cann & Associates, Maximus Federal Services and Trellis Company, along with two holdovers from the current list of nine servicers — the Missouri Higher Education Loan Authority (MOHELA) and EdFinancial Services — will provide “customer support” and “back-office processing”, the department said.
Whether some of the existing loan servicers, with contracts set to expire in 2020, will stay on to build Next Gen remained unclear. Mainstays like Navient have so far been excluded, while Nelnet and subsidiary Great Lakes revealed on June 22 that they were out of the mix.
“There is another contract round for the architecture of a common servicing portal, but that should not diminish the importance of [the June 24] announcement of a chosen five,” retired public policy expert and onetime Education Department whistleblower Jon H. Oberg wrote in a blog post.
Because NextGen promises to be a full-service platform (complete with a virtual assistant named “Aidan” and other new tools), the borrower-servicer relationship may very likely diminish in stature. Unlike in the past, all borrowers will manage their repayment in one place and should receive consistent information, no matter their servicer.
The centralized tool will help the government keep servicers accountable, Education Secretary Betsy DeVos said in the announcement. The department has struggled to maintain servicer compliance in the past, according to a 2019 report from the Office of Inspector General.
What we know about the five new federal loan servicers
Going forward, federal loan borrowers will still be assigned a servicer upon entering repayment. Here’s a look at the five announced:
EdFinancial has been in the student loan industry for more than a quarter-century and is based in Tennessee, the home state of Sen. Lamar Alexander (R), who chairs the chamber’s Health, Education, Labor and Pensions Committee.
F.H. Cann & Associates: Established in 1999, the firm already helps the Education Department with customer support and call center operations for Federal Family Education Loans. However, Betsy Mayotte, the president of The Institute of Student Loan Advisors nonprofit, wrote on Twitter that this choice surprised her, given her past unsuccessful dealings with the firm.
Maximus Federal Services: Like F.H. Cann & Associates, Maximus is another veteran government contractor, serving the Education Department and 30-plus other federal departments and agencies. As Oberg noted, though, it’s also the subject of an “unflattering” 2020 article published by the U.C. Irvine Law Review.
MOHELA: Sometimes, no news is good news, as MOHELA was absent from the latest report by the Consumer Financial Protection Bureau’s student loan ombudsman. The same could be said for EdFinancial.
Trellis Company: A nonprofit, Trellis Company named MOHELA executive Scott Giles as its CEO in 2018. For its part, Trellis put out an informative report on the struggles of parent PLUS loan borrowers in January.
The June 24 announcement revealed that the five new servicers will start working with the department immediately, graduating to servicing loans once they’ve met cybersecurity standards. Oberg pointed out in his analysis that it’s possible these new servicers will subcontract operations to existing servicers until they’re up to speed.
It should be said that the list of federal loan servicers isn’t set in stone. According to Oberg, besides the fact that the Department of Education could award more contracts, it appears existing servicers won’t lose their spot without a fight.
Nelnet, for example, has been told by the department that it won’t receive a contract for Next Gen’s business and technology components. Reporting the developments, Nebraska’s Lincoln Journal-Star newspaper quoted Nelnet’s CEO as saying he would “pursue every legal avenue available” as a remedy.
If you have federal student loans currently serviced by Nelnet or Great Lakes, you could be assigned a new servicer by the end of 2020. Stay on top of your debt if that happens by tracking down your new servicer.
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