Millions of Borrowers Are Set to See a Student Loan Service Change—Here's What to Do If You're One of Them

By the end of the year, nearly 10 million borrowers will have their student loans switched from one servicer to another. Millions more could face the same fate over the next several years. 

In the past, servicers have come under fire for harassing borrowers, misleading borrowers about their options, mismanaging the public service loan forgiveness program and poor customer service.

Transitioning between servicers has also been known to cause headaches for borrowers. Plus, the pause on federal student loans is set to expire Jan 31., which means millions of borrowers will need to prepare and take extra precautions when re-entering repayment.

Here's which student loans are being transferred and what to look out for. 

Which servicers are switching

On July 8., The Pennsylvania Higher Education Assistance Agency (often referred to as FedLoan) announced that it would not renew its contract with the federal government. FedLoan oversees the loans of 8.5 million student borrowers, which have been or will be transferred to a different servicer by the end of the year. FedLoan's contract ends Dec. 14, but the agency tells CNBC Make It it will work with borrowers beyond that date as needed to ensure a smooth transition.

Less than two weeks after FedLoan's announcement, another student loan servicer, Granite State Management & Resources, also announced that it would not extend its contract with the Department of Education when it expires Dec. 31. The servicer handles roughly 1.3 million borrower accounts that will be transferred. 

Navient, the second-largest student loan servicer in the country, has also asked the Department of Education to transfer the accounts of the 6 million borrowers it oversees to another servicer called Maximus. Navient's contract currently remains in effect through 2023 but the FSA is "currently reviewing" Navient's request.  

Verify your loan details

"In a perfect world, these transitions would be seamless to the borrower, but it may not be," says Kevin Walker, publisher of CollegeFinance.com. "And so borrowers have to pay attention."

Servicers should notify borrowers if their loans have been transferred but many borrowers miss this notification, explains Walker. Borrowers can check who their servicer is using the federal student aid dashboard.

Using this information, Walker says that the first thing borrowers should check is if their account number has changed when their loan was transferred "to make sure that, for no fault of their own, they don't miss payments." This way, borrowers can make sure they are making payments to the right account.

The second thing he recommends is checking that their payments are being sent to the new servicer's correct location.

"Especially if you actually send physical checks," he says. "Most people probably don't [send checks], but they might use bill pay with their bank account, which in some cases does result in physical checks being mailed." If a payment is being sent to the wrong location, borrowers may not be making the payments they think they are.

Third, he recommends borrowers who use automatic debit payments make sure payments are being made accordingly after their loans are transferred. 

Checking these three details could help borrowers avoid the negative consequences that could happen if they miss payments after their loans are transferred, Walker explains. 

"You could incur fees, it could hurt your credit, and also interest could accrue into principal," he says. "In other words, your missed payments could be recapitalized into the additional principal."

Check if you qualify for loan forgiveness

Jason DiLorenzo, founder and CEO of PSLFJobs, an employer consultant and jobs platform, emphasizes that borrowers who are interested in income-based student loan forgiveness or the public service loan forgiveness program (PSLF) should take stock of how much progress they have made. 

"If you're pursuing any kind of federal loan forgiveness, even if it's taking a snapshot from your phone, do it," he says. "You want to keep a record of your student loan history."

For those using an income-based repayment plan, DiLorenzo "would advise people to wait until your loan servicer asks you to recertify your income. Because you're either paying zero or you're paying based on an older income. And assuming that people are making more money than they have in past years, you want that lag, because then your payments are lower." 

Borrowers who are pursuing PSLF should document how many payments they have made towards the required 120 monthly payments and complete an employment certification form, which confirms that a borrower's workplace qualifies them for public service loan forgiveness, as soon as possible. 

This is the best way for borrowers to make sure their loans remain in the public service loan forgiveness program when they are transferred, says DiLorenzo.

"If you have made progress towards PSLF, submit another employment certification form now," he explains, stressing that this step is especially important for borrowers hoping to take advantage of the limited-time PSLF waiver that is being offered by the Department of Education until Oct. 2022. "You'll submit that employment certification form after you consolidate, and they'll go back and tell you how many qualifying payments you made. But you have to consolidate the loans within the next year, or the previous payments made on them don't count."

DiLorenzo admits that it can be "overwhelming" when loans are moved from one servicer and another, but by making sure they are keeping up with their progress towards forgiveness, borrowers can give themselves the best odds of a smooth transition. 

Don't miss:

• Department of Education announces Public Service Loan Forgiveness Program changes
• Education Secretary Cardona: 'We're going to continue conversations around loan forgiveness'
• Students miss out on billions in college aid due to these 4 common FAFSA misconceptions