Important Update: PHEAA, the company that owns FedLoan Servicing, recently announced an extension that will last until December of 2022.
Borrowers should still plan for the eventual exit of MyFedLoan, but it won’t happen in 2021.
The decision for MyFedLoan to exit federal student loan servicing comes at a terrible time for borrowers.
The repayment restart was already looking like a mess for borrowers, but this new wrinkle is more bad news for millions of borrowers. With FedLoan Servicing planning their exit, it is unlikely they will make investments necessary to handle the influx of borrowers in repayment. The danger to borrowers is long wait times and potentially undertrained representatives.
If MyFedLoan services your loans, you should expect a headache or two dealing with the repayment restart and eventual exit of PHEAA. Fortunately, there are a few steps that borrowers can take right now to limit the damage.
Preventing the Transfer from MyFedLoan and Relief for Borrowers
When a student loan servicer or lender changes, the first question from many borrowers is, how do I stop this change?
Sadly, there isn’t any way to prevent the change. Worse yet, there isn’t any way for borrowers to benefit from this process. The federal government is allowed to change servicers, and borrowers have no say in the process.
The best we can hope for is a smooth transition.
Planning for the Repayment Restart and PHEAA Exit
Getting answers from your student loan servicer was already going to be difficult. Many servicers have been vocal about the fact that they are not yet ready for payments to restart and lack sufficient staff with proper training.
If your servicer is exiting the loan servicer business in a few months, it is a safe bet that they will be cutting costs wherever possible. For MyFedLoan borrowers, this means long wait times and minimal support.
If you have questions about repayment plans, forgiveness eligibility, or anything else, now is the time to ask. Once the floodgates open in January 2022, it will be tough to get even the most basic question answered.
Certify Public Service Loan Forgiveness Progress
One of the noteworthy aspects of MyFedLoan is that they service all borrowers who are pursuing Public Service Loan Forgiveness.
Anyone serious about PSLF knows that many issues have made it challenging to get forgiveness.
Before the servicer change, it is a good idea to submit an updated Employer Certification Form (ECF), especially if it has been a while. Borrowers unsure of what they are doing can use the Department of Education’s PSLF Help Tool to get the necessary documents in order.
Documenting progress is a great way to ensure that you qualify for PSLF. With MyFedLoan exiting the servicer business, it may also help ensure that all eligible time gets counted.
Sherpa Tip: Public service work done during the federal payment suspension and interest freeze still counts towards PSLF. Even if you didn’t make any payments during the Covid-19 relief, those months could still count towards the required 120 payments.
Delete Auto-Payments and Auto-Debits
Many borrowers have their bank send a check each month to their student loan servicer. If MyFedLoan is no longer servicing your loans, you will want to make sure you stop sending them a check.
Likewise, if you authorized MyFedLoan to withdraw money from your account each month, it is a good idea to remove that authorization. In theory, there shouldn’t be an issue, but the best way to prevent an accidental withdrawal is to end any auto-debits.
Download and Save All of Your Records
Don’t assume that MyFedLoan will transfer accurate records of previous payments.
Years from now, you may apply for student loan forgiveness, and it might be necessary to provide proof of payments made to MyFedLoan.
Downloading all of your statements and a payment history takes very little time. Having these records in the future could be very valuable.
Update Your Contact Information
Finally, borrowers with MyFedLoan should update their contact information.
It might seem like you are doing the lender a favor by doing this, but it is the best practice. If a lender mails a letter to your old address and you miss a bill, you risk losing progress towards forgiveness, late fees, and negative credit reporting.
Ideally, the new servicer will reach out via phone, email, and regular mail. Realistically, this probably won’t happen. If you have an outdated address on file, you risk missing crucial information.