Student loan servicer Navient wants to get out of the federal loan servicing business, the company announced in a press release Tuesday. The decision will impact about 6 million student loan borrowers whose loans will be assigned to a new servicer.
Navient submitted a request to transfer its federal loan servicing contract to another student loan company, Maximus. The transfer is subject to approval by the office of Federal Student Aid (FSA), with finalization expected in Q3 2021.
Navient, formerly part of Sallie Mae, was at one point the largest student loan servicer in the country. The company has been involved in several lawsuits alleging it purposefully and knowingly made borrowers overpay on their student loans.
Navient is just the latest student loan servicer to ditch its federal obligations. Recently, two other large servicers — FedLoan Servicing and Granite State Management & Resources — announced that they were not renewing their federal contracts, which will impact 10 million borrowers.
If your student loan servicer is shutting down, your loans will automatically be reassigned to a new servicer with the same repayment terms. But if you're unhappy with your student loan repayment plan, consider your options like income-driven repayment plans, student loan forgiveness and private student loan refinancing.
You can compare student loan refinancing offers without impacting your credit score on Credible.
Navient lawsuits made federal servicing complicated
The Consumer Financial Protection Bureau (CFPB) sued Navient in 2017 for "systematically and illegally" misleading borrowers about their loan repayment, including cheating borrowers out of their rights to lower monthly payments and student loan forgiveness.
"For years, Navient failed consumers who counted on the company to help give them a fair chance to pay back their student loans," former CFPB Director Richard Cordray said in a press release at the time of the lawsuit. "At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs.
In addition to the CFPB lawsuit, Navient has been sued by several states, including Illinois, New Jersey, Pennsylvania and Washington. The lawsuits allege that Navient misled and mistreated student loan borrowers throughout every stage of the process, from loan origination to collecting on defaulted student loans.
Navient dismisses allegations that it was involved in misconduct, instead shifting the blame to state-specific regulations on federal student loan servicing.
What to do if your student loan servicer is changing
The FSA is working on transitioning impacted borrowers to new student loan servicers before federal student loan payments resume in February 2022. If your student loans are serviced by Navient, FedLoan Servicing or Granite State Management, you don't need to take any action on your student loans.
While the FSA will handle the transfer of your loans, there are still a few things you can do to prepare for payments to resume under a new student loan servicer.
Make sure your contact info is up-to-date
The Education Department is working on a number of email and social media campaigns to keep borrowers informed throughout the next few months as student loan servicers change and monthly payments resume. Make sure your contact information is correct on the FSA website so you don't miss any important communications about the status of your federal loans.
Enroll in an income-driven repayment plan
When your monthly payments resume in February 2022, they'll be the same as they were before COVID-19 administrative forbearance began in March 2020. If you don't think you'll be able to afford your student loan payments, be proactive by enrolling in an income-driven repayment plan (IDR).
Depending on the type of federal loans you have, an income-driven repayment plan can limit your monthly loan payment to 10-20% of your disposable income. You can learn more about IDR plans on the FSA website.
Refinance your private student loans at a lower rate
Student loan refinancing is when you take out a new loan to repay your current student loans with new terms like a lower interest rate. Refinancing may be able to help you lower your monthly payments, pay off your loans faster and save money on interest over time.
Well-qualified borrowers who refinanced their student loans to a longer term on Credible were able to shed more than $250 from their monthly payments, for example. Those who refinanced to a shorter-term loan were able to pay off their loans 41 months faster and save nearly $17,000 in the process.
How to decide if you should refinance your student loans
While refinancing may help you lock in a lower student loan rate, it's not suitable for everyone. Refinancing your federal loans into a private loan, for example, will make you ineligible for federal benefits like income-driven repayment plans, administrative forbearance and student loan forgiveness programs.
If you have private student loans, you have nothing to lose by refinancing to a lower interest rate. Student loan lenders don't typically charge refinancing fees, which makes it possible to take advantage of lower student loan interest rates without adding to the cost of borrowing.
To find out if refinancing is right for you, use Credible's student loan refinance calculator.
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