Federal student loan servicing has been a major concern of borrowers for a number of years. Borrowers often complain that they are given incomplete, or even worse, wrong information from the company responsible for answering all of their student loan questions. Many attribute the high default rate on federal student loans to the servicers inability to explain the many options available to borrowers.
One of the big downsides to federal loans is dealing with these servicers. Unfortunately, the Department of Education makes it very clear that borrowers do not get to select their loan servicer.
The good news is that there are a few tricks that can be used to get loans transferred from one servicer to another.
Trick #1: Federal Loan Consolidation
Consolidating your federal loans is a very important decision and not one to be taken lightly. For some borrowers, consolidating your federal loans is essential. (As an example – federal consolidation can actually help some federal loans become eligible for Public Service Student Loan Forgiveness). For others, federal consolidation would be a huge mistake.
Setting aside the many issues that go with federal student loan consolidation, one of the perks of going though the process is that borrowers get their choice of new servicers. The downside is that they currently only have four options: Navient, MyFedLoan, Great Lakes, and Nelnet. As borrowers of federal loans this is the most input we get on who services our loans.
If you are considering federal student loan consolidation, the Student Loan Borrower Assistance page on federal consolidation has a good explanation of the process, the pros and cons, and your options.
Trick #2: Sign up for Public Service Loan Forgiveness
This option will only apply in a few circumstances, but it could potentially help many borrowers escape their current loan servicer. However, it only works for people who are currently working for the government or a not-for-profit charity.
The way it works is pretty simple: when you certify your public service employment, you authorize the government to transfer your loan servicing to MyFedLoan. This is because MyFedLoan services the loans for all people who are working towards Public Service Student Loan Forgiveness.
Even if you don’t plan on staying in public service for the required 10 years or think you will pay off your loans long before you can take advantage of forgiveness, theres is nothing wrong with certifying past payments. Just fill out the form and in the process get your loans transferred.
The only downside: your only choice is MyFedLoan, and they may not be an improvement over your current situation.
Trick #3: Take your business to the private sector
A final desperate act to get away from your federal loan servicer would be to consolidate or refinance with a private company. Going this route is going nuclear on your federal student loans. If you refinance or consolidate in the private sector, you lose all of the perks of federal student loans. These would include income based repayment, loan deferments, and forgiveness programs.
Most people who go this option do so because they want lower interest rates and are certain that they will not need or qualify for any of the benefits that go with federal loans.
If you are thinking about going this route, there are a number of private companies offering consolidation and refinancing services, and you can shop around and talk with the different companies to make sure you are happy with your options and the care you will get as a customer.
Uncle Sam does not give you any choice in the company that services your federal student loans. The good news is that there are a few tricks that can be employed to give you some say as to who you deal with. The options may be limited, but for a desperate borrower, there are ways to get away from your current servicer.