Major Student Loan Servicer PHEAA Announces It Won’t Seek New Contract With ED

By Owen Daugherty, NASFAA Staff Reporter

One of the largest student loan servicers won’t seek to renew its contract with the Department of Education (ED) when its current contract expires at the end of the year.

The Pennsylvania Higher Education Assistance Agency (PHEAA), which administers the Public Service Loan Forgiveness (PSLF) program, reportedly notified ED officials of its decision to not renew its federal student loan servicing contract, which is set to expire on Dec. 14, 2021.

In a statement to NASFAA, PHEAA said the decision would allow it to focus more on its work in Pennsylvania.

"In the 12 years since PHEAA accepted the terms of its federal servicing contract, the federal loan programs, as managed by the U.S. Department of Education, have grown increasingly complex and challenging while the cost to service those programs increased dramatically," PHEAA said.

Several lawmakers have singled out PHEAA for its handling of the PSLF program and the program as a whole for not serving its purpose in providing workers in the public sector with federally-backed student loans the ability to seek forgiveness following 10 years of qualifying payments.

Sen. Elizabeth Warren (D-Mass.), who has been a vocal critic of student loan servicers, and PHEAA specifically, said “millions of borrowers can breathe a sigh of relief that their loans will no longer be managed by PHEAA.”

“PHEAA remains responsible for ensuring these student loan borrowers experience a swift and orderly transition to a new servicer that won’t cheat them – and we are all responsible for fixing our broken student loan system,” she wrote in a post on Twitter

A recent report from the Consumer Financial Protection Bureau (CFPB) detailed “significant problems” with loan servicers’ handling of the PSLF program, though it did not identify servicers by name. 

While it is not immediately clear who will take over handling of the PSLF, ED and Federal Student Aid (FSA) are in the midst of streamlining their student loan servicers as part of the Next Gen FSA Initiative. Due to the impact of the coronavirus pandemic, FSA has paused work on providing intermediate loan servicing providers while it determines who its long-term servicers will be moving forward. 


Publication Date: 7/9/2021

Joseph W | 7/12/2021 11:37:10 AM

Merely transferring loans from one servicer to another is an onerous task, but coupled with loans going back into repayment this September, and additional PSLF documents, IDR repayment plans tied into these loans...This might signal the end of the PSLF program.

Ben R | 7/9/2021 2:25:46 PM

The reason most borrowers are denied PSLF cancellation is not reaching their 120th payment, largely because Direct Loans were not the standard until 2010 and most borrowers were not aware of the program until years later. I am not sure how the servicer should be blamed for that, but they are the easy target.

The irony of this is that with an average cancellation of $82,000 so far, the new scrutiny will be on the cost of the program with lopsided benefits to graduate borrowers who enter with loans over $100,000. As larger and larger loans enter with lower and lower IDR payment requirements (including zero dollar payments for the last 18 months), we end up paying the servicers more to collect even less. It is almost to the point that it costs more to service the loan than actually gets paid down. How does that even make sense from a policy standpoint?

Miriam E | 7/9/2021 1:11:12 PM

This is a major disruption in a system that is already fraught with complexity. Conversely. as Charles implied, it could serve as an opportunity to rectify the problems that are frustrating both the borrowers, and as we could now see by PHEAA's action, the servicers as well. Keeping the brakes on repayment should be considered to allow time for stakeholders to weigh in on the best way forward.

Peter G | 7/9/2021 11:54:37 AM

In theory, the soundest course at this point would be to extend the pause at least long enough to dig into a more coherent servicing model.

If it's determined it would take 1-2 years to actually build whatever that is, that might be too long, but perhaps not. In reality we've known since 2010 that the system was broken in many ways, and I don't think it makes sense from a borrower/system point of view to launch back into repayment (which will be its own confusion/chaos) and then subsequently institute additional shifts.

I do understand the concerns about delays, but at the same time, the system does not function well enough in its current state for even well-prepared borrowers to navigate swirl.

Charles M | 7/9/2021 9:13:50 AM

Does anyone know if it's correct to assume this will also impact the servicing of all TEACH Grants?

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