FedLoan, Federal Student Loan Processor, Will Not Renew

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One of the largest government student loan service agencies has just announced its closure.

The Pennsylvania Higher Education Support Agency, which oversees loans to 8.5 million student borrowers, said Thursday it would not renew its contract with the federal government when it expires later this year.

The agency, known to most borrowers as FedLoan, is one of several companies that the Department of Education pays to manage a $ 1.59 trillion public student loan portfolio. O 23 million borrowers are not making payments right now due to a pause imposed by the pandemic, and the FedLoan announcement will only increase pressure to extend the moratorium.

The pause on payments and interest may expire in less than three months – as soon as September 30th… Millions of borrowers whose loans are monitored by FedLoan, including Government Service Loan Forgiveness The program must be migrated to the new service center at the same time the payment processing engine is gaining momentum again.

Re-flipping the switch for tens of millions of borrowers should already be a daunting task, so consumer advocates and some lawmakers have called for an extended pause in payments. They argue that the economic recovery has been uneven and that loan payments should be resumed in the same way as other elements of the pandemic defenses, including moratoriums on evictions and increased unemployment benefits. Democrats of both houses of Congress wrote a letter President Biden last month, urging him to defer payments until at least March 31st.

The Department of Education declined to comment on whether the situation would delay the resumption of payments. But advocates of student borrowers said it was imperative that the system had more time.

“This raises the stakes because of the need to extend the pause in payments,” said Persis Yu, a staff attorney for the National Consumer Advocacy Center and director of its Student Loan Aid Project. “It has always been a very difficult task, and trying to do it while transferring borrowers from one provider to another only adds to the number of things that can go wrong.”

Ms. Yu also said she wondered if other service companies could take on all of the borrowers FedLoan is currently working with.

The Pennsylvania Higher Education Promotion Agency, a quasi-government agency, conducts its federally owned student loan service operations as FedLoan. The company said in a statement that it plans to focus instead on its “core Pennsylvania public service mission,” which includes helping students pay for college tuition. The agency said it contracted with the Ministry of Education in 2009 to support this mission, but that federal programs “are becoming more complex and complex, while the cost of servicing those programs has skyrocketed.”

FedLoan contract that was often criticized for deceit and bad serviceexpires December 14th. The agency said in a statement that it notified the Department of Education on Thursday that it will not renew the contract “beyond what is necessary to ensure a smooth transition for borrowers.”

Rich Cordray, chief operating officer of the Department of Education’s Federal Student Aid Bureau, said in a statement that the two sides agreed to work together on a phasing out plan that “will include early and frequent communication and clear guidance on what borrowers should expect, and strict control by his agency during the transition period.

These transitions did not always go smoothly. Another change of maintenance staff – involving 35 million loans from 2012 to 2013 – caused a number of problems for borrowers, according to analysis released in October by the Student Borrower Advocacy Center and the American Federation of Teachers. The report says that many borrowers were not notified that their loans had been transferred, and errors were found in other accounts.

While the disruption would complicate an already cumbersome process, consumer advocates and some lawmakers were pleased that borrowers would no longer have to work with FedLoan. This year, an agreement was reached with Attorney General of Massachusetts, addressing complaints of unfair and fraudulent behavior that deprived teachers and other government officials of the assistance promised under government employee forgiveness programs. New York’s attorney general sued FedLoan in 2019 for similar reasons, also stating that he did not deliver on the most basic tasks

Seth Frothman, executive director of the Student Borrower Advocacy Center, called it “good news that the Department of Education will no longer rely on a company accused of widespread mismanagement.”

FedLoan’s original loan servicing contract expired in June 2019, but the company has continued its partnership with the department with a number of renewals.

The decision was first announced by Penn live

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