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Student loan companies get $ 2 billion to renew contracts before 2022

  • The Department of Education renewed the contracts of 7 student loan companies for $ 2 billion.
  • Navient was one of those companies, but she asked to transfer her federal loan portfolio to another company.
  • Millions of federal borrowers still don’t know who they’ll be paying each month when payments resume in 2022.

In just over 100 days, the federal student loan payment hiatus will end and 43 million borrowers will have to start making payments again. Some details of how this will happen are still pending.

The Education Department said in a press release on Friday that it had reached an agreement with six student loan companies that renewed their contracts on stricter accountability measures, including providing better customer service to borrowers and by requiring businesses to comply with federal and state laws regarding loan servicing.

In addition to the new standards, however, the ministry also noted that it was in the process of negotiating a student loan application, Navient, to shift its federal student loans to a new department even after getting a $ 391 million contract extension. of dollars last month. . It comes after two other companies – the Pennsylvania Higher Education Assistance Agency (PHEAA) and Granite State Management and Resources – announced plans to shut down their lending services in July, forcing a total of 16 million borrowers to pay off their debt. to new businesses in February. .

In total, the government has offered seven student loan companies over $ 2 billion to renew their contracts at least until the end of next year, according to a government website, but not all have accepted his offer. Here is what it means.

Six student loan companies will likely service the entire federal loan portfolio

Great Lakes, HESC / Edfinancial, MOHELA, Nelnet, and OSLA Servicing are likely to serve the student loans of 43 million federal borrowers until at least 2023. Navient, which manages 6 million federal accounts, agreed to a contract extension but later requested to transfer his accounts. to another company, called Maximus.

A spokesperson for the Ministry of Education previously told Insider that before approving the transfer, the ministry would ensure that “Maximus has the adequate capacity, resources and management experience to ensure a transition smoothly for borrowers ”.

“We will not approve this proposal or start any transition until we are satisfied that Maximus is fully capable of providing high quality service,” added the spokesperson.

The ministry also noted in Friday’s press release that it had failed to come to an agreement with PHEAA on a one-year contract extension – something it had offers give more time to transfer their 8.5 million accounts to a new company. The administrative burden of transferring the PHEAA is likely to prove difficult, given that it manages borrowers under the Public Service Loan Cancellation Program (PSLF), which is supposed to write off civil servants’ student debt after ten years of qualifying monthly payments.

The Federal Student Aid Office (FSA) has announced that some federal PHEAA accounts will be transferred to MOHELA, and the transfer of the remaining accounts is yet to be determined, and borrowers should be notified of the change.

The department “still expects” to restart payments on February 1

The Education Department told Insider it has already made smooth transfers of borrowers to new student loan companies, but this will be the first time it has to pay back 43 million borrowers after one year. and a half, as well as 16 million borrowers. accounts.

But this administrative burden does not change the ministry’s schedule to revert to reimbursement.

“We will continue to work to ensure that all of our borrowers can benefit from a successful return to repayment,” a spokesperson for the Department of Education told Insider. “The ministry expects student loan payments to resume after Jan. 31, 2022,” the spokesperson added, when asked if the business closures would change the schedule.

This worries lawmakers and lawyers. Last month, senior members of the House and Senate education committees, Representative Virginia Foxx and Senator Richard Burr, sent a letter to Education Secretary Miguel Cardona saying they were ” deeply concerned “about the restart of payment.

“The lack of clarity and direction on the process surrounding borrowers returning for repayment is as troubling as the process is uncertain,” Republican lawmakers wrote.

However, reforms of the student loan industry are underway. The FSA has expressed its commitment to forcing companies to meet higher standards to ensure borrowers are not misled, coming just after the reactivation of an enforcement office to “vigorously investigate” abuses of creditors. student loans and federal assistance in schools.

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