As the US Department of Education restructures federal student loan servicing, Nelnet and Great Lakes will no longer process federal loans

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.The Department of Education has not renewed contracts with student loan servicer Great Lakes and Nelnet, with plans to change the way student loans are serviced and repaid. The Department of Education wants to change to a model where loans are paid directly through studentaid.gov for more consistency and accountability. If the Department of Education doesn’t change plans, 12.3 million Great Lakes and Nelnet customers will have their loans changed to another servicer in December.In the meantime, borrowers should continue making regular payments to their current servicer.Sign up for Personal Finance Insider’s email newsletter here »As of December 2020, Great Lakes and parent company Nelnet will no longer service federal student loans. According to a press release by the Department of Education released July 24, the two companies haven’t made the list of the five companies with contracts to service federal student loans. The release states that five companies — EdFinancial Services, F.H. Cann & Associates, Maximus, MOHELA, and Trellis Company — will hold contracts from the Department of Education. Federal student loans are issued through the government, but after graduation, repayment isn’t made directly through the government. Instead, the Department of Education assigns borrowers to loan servicers, or companies that collect payments and provide customer service. These servicers handle payments and send information to credit reporting bureaus. The Department of Education contracts with 11 of these servicers, including Great Lakes and Nelnet. But, a reorganization seeks to change the way federal loans are repaid in the future.The Departement of Education wants to streamline the payment processA department initiative called Next Gen Business Process Operations aims to streamline the process, and have all federal loans repaid through studentaid.gov. This new system would replace the current system, where all servicers use their own platforms. The Department of Education said in the June 24 press release that the new plan would replace a system that “can lead to customer confusion and inconsistent operations.” Additionally, the department says that the new repayment system through the studentaid.gov site will create more accountability. “The legacy servicing contracts do not contain adequate incentives to reward servicers when they manage borrowers’ accounts successfully, and they do not allow for the appropriate consequences to be applied to loan servicers that fail to meet contract requirements,” the Department of Education wrote in a press release.Some borrowers accused Great Lakes of issuing incorrect information to credit reporting bureaus in May, after forbearance issued by the CARES Act. A company representative told Business Insider in a statement at the time that the issue was caused by an inconsistency in how forbearance was reported, and that the issue had been addressed.Borrowers will continue to make regular paymentsIn a June 22 statement, Nelnet CEO Jeff Noordhoek said “To simply throw away the training and experience of Nelnet, Great Lakes, and our dedicated associates is a recipe for an implementation disaster that will negatively impact borrowers.” Nelnet has not yet responded to Business Insider’s request for comment. Nelnet and Great Lakes have been federal student loan servicers since 2009. As of March 31, 2020, the two companies serviced loans for a combined 12.8 million customers, with $428.7 billion worth of student loans.The contracts for these two companies are set to expire on December 14, 2020, but could be extended for another year through two six-month contracts.Until a plan is in place to have all payments made through studentaid.gov, student loan borrowers will continue to make payments through servicers. If the Department of Education’s decisions remain unchanged, Nelnet and Great Lakes customers will have their loans migrated to another servicer’s systems, according to both the Department of Education and Nelnet’s press releases.

Read More

Leave a Reply

Your email address will not be published. Required fields are marked *