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The Pennsylvania Higher Education Aid Agency — which oversees the loans of 8.5 million student borrowers — announced that it will not renew its contract with the federal government when it expires later this year.
Consumer advocates applauded the news because PHEAA, a quasi-governmental student aid organization created in 1963 by the Pennsylvania General Assembly, has been accused of providing misleading information to borrowers and making it difficult for them to access relief programs.
According to recent data, only about 5% of borrowers applying for the National Public Service Loan Waiver Program run by PHEAA have been approved.
The agency, known as FedLoan to Borrowers, is one of several companies that the Department of Education pays to manage the government’s $1.59 trillion student loan portfolio.
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“Student loan borrowers across the country, including millions of teachers and other public service employees, received welcome news that the Department of Education will no longer rely on a company accused of widespread mismanagement and abuse to handle the student loans of millions of borrowers.” Seth Frotman, executive director of the Student Borrower Protection Center, said in a statement.
PHEAA’s contract with the government will end on December 14, 2021.
Keith New said, “In the 12 years since PHEAA accepted the terms of its federal servicing contract, federal loan programs managed by the U.S. Department of Education have become increasingly complex and challenging, while the cost of servicing those programs has increased dramatically. has increased substantially.” , spokesperson for PHEAA.
What the change means for borrowers
If your federal student loans are currently serviced by PHEAA, you will be matched with a new lender, said higher education expert Mark Kantrowitz.
You will want to make sure the new servicer has all the correct information you need.
Most federal student loan borrowers don’t have to make payments on their student loans until October, thanks to a pandemic-era relief policy. But when you resume payments, you’ll want to keep them in PHEAA until you learn about your new lender, experts say.
Doing so is especially important for borrowers pursuing public service loan forgiveness, as each payment brings them closer to the 120 payments required to have their debt forgiven. Keeping records of your payments can also protect you.
“Borrowers should keep a spreadsheet showing, for each payment, the date of payment, amount of payment, repayment plan and eligible job,” Kantrowitz said. “If ever there are any problems, this spreadsheet will be helpful to solve them.”
If you don’t like your new valet, you can make the switch by consolidating your federal loans. However, doing so may reset your repayment deadline.
Furthermore, most federal student loan servicers perform similarly, Kantrowitz said. “Switching servers can be the equivalent of jumping from frying pan to fire, with no real improvement.”
Still, borrowers who run into problems with their servicers should file a complaint with the Consumer Financial Protection Bureau.