ED Announces Plan to Transition to Two Loan Servicers, Release Combined PSLF Form

By Owen Daugherty, NASFAA Staff Reporter

As part of its process moving toward finalizing the Next Generation Financial Services Environment (Next Gen), the Department of Education (ED) on Wednesday said it plans to hire two companies next year to replace the nine loan servicers currently managing the federal student loan portfolio for more than 33 million borrowers.

While an exact timeline was not unveiled, the department said now is the best time to make the transition due to the fact that ED’s contracts with the nine current service providers are set to expire over the next year and a half.

ED published a solicitation for contractors to apply on Wednesday and said proposals are due in December, with the hope to have contracts signed in the spring, barring any delays or pushback. ED said companies that currently serve as loan providers are eligible to bid on the new contracts.

The contractors selected will be required to follow enhanced cybersecurity measures, ED said, in line with Federal Student Aid’s (FSA) five-year strategic plan. ED said the new servicer contracts it plans to award would last for at least five years, with the possibility to extend them for an additional five years depending on the needs of FSA.

ED is pitching the transition to Next Gen in three phases and said the new proposal to transition to two servicers is an interim solution to federal student loan servicing, as FSA ultimately is seeking to have borrowers manage and make payments through a single federal portal, rather than through the multiple servicers that currently operate.

The department did not announce a timeline for when it would begin moving the accounts of borrowers to the two new student loan servicers, but stressed that the two companies will provide everything borrowers associate with loan servicing.

Depending on which companies are selected, ED cautioned that borrowers will likely interact with a different loan servicer. A plan to communicate the changes to borrowers is currently in the works.

ED on Wednesday made another significant announcement, detailing changes to the Public Service Loan Forgiveness (PSLF) program and unveiling a new, single PSLF form that combines the application and employment certification forms.

The single form will cover applications for both the PSLF program and the Temporary Expanded PSLF (TEPSLF) program. The form will be available to the public starting in November.

As part of the changes, ED said lump sum and prepayments will now count toward PSLF for up to 12 months, or until the next time their income-driven repayment plan is due for certification, whichever comes first.

Additionally, a revamped PSLF help tool will become available in November. The overhaul of the tool will provide users with a better design interface and help borrowers more easily determine their eligibility for the program, ED said.

Borrowers who have used the tool before will also now be able to see a history of their submitted employment information, to more easily be able to track their payments, and to have access to a customized table of borrower loan information and a personalized review of possible next steps to gain eligibility for the loan forgiveness program.

ED provided an overview of the changes to the PSLF program in a post published Wednesday. NASFAA previously submitted comments applauding ED’s decision to attempt to simplify the program by offering a single form for borrowers and offered a few suggested modifications to the form.


Publication Date: 10/29/2020

Ben R | 10/30/2020 9:55:05 AM

Re PSLF: How will prepayment work if the required payment is already zero? "you paid zero this month, so you're "paid" for the whole year"?

Form simplification and prepayment credit is good news for borrowers, but I see the cost of this program and gaming getting out of hand very quickly especially if combined with rolling $10,000 per year forgiveness. You could make one payment of $1200 for the year (based on a $100 monthly payment) using a student loan or tax refund and get $10,000 forgiven for that effort. That's a 833% rate of return. How is that sustainable from a lending standpoint?

Carmen Z | 10/29/2020 2:35:46 PM

I'd be really curious to know what this will do to the credit history benefit that student loans offer. Usually, a transfer of credit from one account to another results in a "Closed Account" which can have a negative effect on the average age of one's credit history.

John G | 10/29/2020 9:13:09 AM

The "pay ahead" change for PSLF is a welcome change. Looking forward to hearing more.

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