When you first take out federal student loans, you can’t select your servicer, that is, the company contracted by the government to manage your loans. However, you can change federal student loan servicers after collecting the loan. There’s no reason to switch if you’re fine with your current servicer. You must know how to switch student loan servicers if you’re having trouble dealing with them, as many borrowers do. If you don’t know who your loan servicer is, go to StudentAid.gov to find out. You can also get in touch with all of the loan servicer contact centers by dialing 1-800-4-FED-AID.
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6 steps on how to switch student loan servicers
Table of Contents
- Choose your goal below to determine your best option for switching services.
- Refinance your federal loans with a private lender.
- Exit the federal loan system altogether by refinancing privately. But you give up income-driven repayment and federal loan forgiveness programs.
- Calculate below how much you can save by refinancing. Know what you owe and enter details of your existing loan.
- Estimate your new rate. The better your credit, the lower the rate you’ll likely get. Use 5% if you’re unsure.
- Run the numbers. and enter details about your hypothetical new refinance loan to see what you could save.
Why do borrowers switch servicers
Every year, hundreds of borrowers submit complaints with the Consumer Financial Protection Bureau, the federal regulator in charge of overseeing the entire student loan servicing and lending business. According to the CFPB complaint database, approximately 40,000 student loan grievances have addressed concerns borrowers experienced with their lender or servicer since the CFPB began receiving complaints in 2011.
Borrowers usually complain about not receiving information regarding repayment choices and having trouble with how payments were handled. These and other complaints by borrowers have prompted investigations by the CFPB and state attorneys general. It has even resulted in litigation against certain servicers for practices that authorities claim hurt borrowers while they repay their debt. If you’re unsatisfied with your service provider and want to switch, there are just a few options.
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4 ways to to switch student loan servicers
1. Apply for public service loan forgiveness
Applying for Public Service Loan Forgiveness will push for a change in the company that manages your loans. It is a program for student loan borrowers who are employed in government or non-profit organizations. Before filing for tax-free forgiveness, you must make 10 years of payments. The current servicer that processes forgiveness applications is MOHELA. Your loans will be transferred to MOHELA once you complete an Employment Certification Form and the Department of Education determines that your employment is eligible. To save money, you’ll also need to make payments on an income-driven plan.
2. Apply for total disability discharge
Filing for total disability discharge is not a way to switch service providers. It is a loan forgiveness scheme for borrowers who are unable to work owing to total and permanent physical or mental disability. Nelnet is the only servicer that manages the discharge procedure, so it becomes your servicer once your application is approved. You must document your disability while applying for discharge. For three years, Nelnet will monitor your finances and incapacity on behalf of the federal government. If you do not meet the standards during the three-year monitoring period, your loans may be reinstated.
3. If the department of education transfer your loan
The Department of Education may transfer your loan from one servicer to another during the course of its life. If your loans are transferred, you will be contacted by both your current and new servicers. After then, you’ll make payments to the new servicer.
Borrowers should undertake the following before transferring their loans:
- Download and keep your payment history from your online account, or ask your servicer for a copy.
- Make sure your contact information is up to date, including your most recent address, phone number, and email address.
When a loan servicing transfer occurs, you will be alerted, and you will manage payments with the new servicer. All service providers offer the same options and programs, but customer service varies.
4. Refinance with a private lender
The only other option is to refinance student loans with a private lender. Your current government loans will be consolidated into a single new private loan owned and administered by a bank, credit union, or online lender in this situation.
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Loan Consolidation
Consolidating federal student loans means combining your existing loans into a single new direct loan. It’s a smart alternative that can make loan payments easier to handle and can lengthen your loan term, lowering your monthly cost. With a longer payback period, however, you will pay more in interest over time. You can apply for a consolidation loan at studentaid.gov. You enter the loans to be consolidated and select a repayment plan. You can have it both ways: you can have it both ways and you can have it both ways. If you are unfamiliar with your options, consult the Federal Student Aid website for a complete list of servicers.
The bottom line on how to Switch Student Loan Servicers
Dealing with an unresponsive or otherwise difficult loan servicer can be aggravating. The good news is that you’re not stuck with the servicer you’ve been assigned to. You can change your student loan servicer if you’re not satisfied with the current loan company. Direct consolidation of your loans or refinancing are some of the ways to obtain a new servicer. However, when you refinance federal student loans with a private lender, you will lose benefits such as income-driven repayment and loan forgiveness.
