One of the most frustrating parts of having federal loans is dealing with the federal loan servicers. The government contracts with a number of third-party servicers, companies like Navient, Nelnet, myfedloan, and others. These contracts are very lucrative for the companies involved, but the service often leaves borrowers wanting more.
In response to widespread borrower complaints and increasing default rates, Department of Education employees are currently in the process of creating a centralized portal for federal loan borrowers. This central portal would be run by the Department of Education and eliminate the need for third-party loan servicing. As a result of this move, contract negotiations with Navient and Nelnet have been pushed back into 2016.
In theory this move could greatly improve the borrower experience when it comes to dealing with federal student loans. How things ultimately shake out will depend upon how successful the Department of Education is at improving things by managing the debt in-house.
What will get better?
If the central portal is created, one group of borrowers will see a huge benefit from day one. These borrowers would be the ones who have loans with multiple servicers. As we pointed out this summer, this approach is a highly inefficient use of federal dollars, and results in a very frustrating experience for the borrower.
If you have loans with ACS, Nelnet, and Navient; rather than making sure three different lenders get paid, you will be dealing with just one… the Department of Education. This is especially beneficial should the need arise to change repayment plans or get a forbearance. Rather than having to make three separate phone calls, it is one call to one place.
What might get better?
Customer service hopefully will improve, but it isn’t a sure thing. At present, customer service with many loan servicers is so bad that we have had to write guides to getting accurate information. Moving things in-house will give the Department of Education far more direct oversight.
However, many problems still remain. The Department of Education will have to create call centers that can handle the necessary volume and train people to answer questions that can be very complicated. At the same time, they will want to spend a little as possible to avoid excess spending. In short, many of the challenges that plague the current loan servicers will not disappear just because it is handled by the government.
While there is reason to be excited about the move, there is also grounds for concern, ask anyone who ever tried to get a tax question answered by the IRS.
What will get worse?
One aspect of this move will create headaches for a number of borrowers. Transitions from one loan servicer to another are never smooth and easy. Automatic payments have to be properly set up. New lines of communication will need to be opened, and learning the ins and outs of a brand new loan servicer will be necessary. The good news about the transition concerns is that they are all temporary. Once all the loan management is moved, it hopefully won’t change for the life of the loan.
In many ways, this is an exciting development that has the potential to improve the borrower experience for those with federal loans. However, because there is potential for issues, it is important to be aware that problems may arise.