What should you know about the largest student loan servicing companies? Here are some things to know, plus a glossary of common student loan terms.
Most federal and private student loans in the United States are serviced by one of three corporations: Navient, Nelnet, and PHEAA.
History of Navient
The company was formed in 2014 when Sallie Mae spun off its federal loan servicing business into Navient, while retaining most private loans. Today, Navient services both federal and private student loans. If you took out federal student loans with Sallie Mae prior to 2014, your loans may have been transferred to Navient.
Navient also purchases student loan debt from other lenders. Most of Navient’s revenue comes from bundling loans and selling them to investors as financial securities.
With 25% of U.S. student loans, Navient is not the biggest student loan servicer, but it has been the subject of the most federal and state lawsuits and investigations:
Navient Corporation logo, available via Wikimedia under Fair Use
In 2015, the CFPB’s investigation concluded that Navient overcharged borrowers and mistreated them in violation of federal consumer protection laws.
In 2015, the DOJ found that Navient cheated active-duty troops and permanently disabled veterans on their student loans for nearly a decade by damaging their credit and making repeated errors in processing their payments.
In 2017, the CFPB and the attorneys general of Illinois, Pennsylvania, and Washington filed a complaint that Navient levied abusive interest charges and hurt disabled veterans by making false statements on their credit histories. They also found that Navient purposefully concealed income-based repayment options from borrowers and steered them toward costly repayment plans instead of affordable long-term alternatives. Navient also obscured the annual notices and deadlines to renew desirable plans, causing financial harm.
History of Nelnet
Nelnet is an education financial services conglomerate founded in 1996 and based in Lincoln, Nebraska. Nelnet became the largest servicer of student loans in the United States after its acquisition of Great Lakes Educational Loan Services in 2018, with over 40% of all student loans.
Nelnet conglomorate logo, available via Wikimedia under Public Domain
An audit by the U.S. Department of Education revealed that for nearly 15 years, Nelnet had utilized a loophole in tax law to charge borrowers a higher interest rate on loans, in what became known as the “9.5 Scandal.”
There is currently a class action lawsuit against Nelnet that could potentially benefit up to 6 million borrowers.
According to the complaint, Nelnet is accused of charging abusive interest fees and steering borrowers into forbearance in order to increase the number of borrowers in its portfolio while minimizing the number of borrowers who successfully discharge their student loans.
If you were charged excessive fees or otherwise mistreated by Nelnet, fill out the class action questionnaire to see if you are eligible to join.
History of PHEAA / AES / FedLoan Servicing
PHEAA logo, available via Wikimedia under Public Domain
The Pennsylvania Higher Education Assistance Agency (PHEAA) is a provider of student financial aid services for students in Pennsylvania as well as across the country.
PHEAA conducts its FFELP and private student loan servicing operations as AES, and services loans owned by the U.S. Department of Education through its organization FedLoan Servicing.
Along with NelNet, PHEAA was revealed by a DOE audit to have abused a tax code loophole to charge excessive interest rates on loans in the 9.5 Scandal.
PHEAA was also sued by the Massachusetts attorney general after an NPR investigation revealed that PHEAA converted approximately one in three grants for teachers to high-interest loans for making slight administrative errors on their paperwork.
Terminology
To understand the student loan industry, you will need to be familiar with these terms:
Forbearance
Forbearance is an agreement between the borrower and the lender that delays foreclosure on the borrower if they can follow a proposed payment schedule
Forbearance can keep people in debt for longer because interest will continue to accrue during the period of delayed foreclosure. Before going into forbearance, borrowers should first check a loan marketplace to determine if they are eligible for a lower payment instead.
Garnish (Wages)
An order to withhold money belonging to a borrower who is being sued by a lender.
There is no provision in the CARES Act that prohibits debt collectors from garnishing stimulus relief money from a personal bank account.
Deferment
An arrangement that allows a borrower to postpone loan payments temporarily, such as in the case of unemployment
Amortization
Negative amortization occurs when a loan payment is less than the interest charged over the same period, causing the outstanding balance of the loan to increase.
Positive Amortization occurs when the loan payment is more than the interest charged, causing the outstanding balance of the loan to increase
Student Loan Servicer
A company assigned to handle the billing and collection on a borrower’s student loan.
The DOE outsources most administrative tasks to student loan servicers.
You can’t pick your federal or private loan servicer.
The entity that owns your loan, such as the Department of Education. This is not the same as your loan servicer.
The servicer of your federal loan can change at any time. Be sure to read any notifications mailed to you by your lender, and keep your address up to date.
Federal Family Education Loan Program (FFELP)
Issued loans from 1965 until it was ended in 2010 when Congress passed the Health Care and Education Reconciliation Act.
Federal Stafford Loans
One of four FFELP loan types, a Stafford Loan is a student loan which guarantees repayment to the lender if a student defaults. There are strict eligible and borrowing limits on Stafford Loans.
There are subsidized and unsubsidized Stafford loans.
Student Loan Asset-Backed Securities (SLABS)
SLABS are securities backed by income streams generated by a package of private student loans. Investors holding SLABS are entitled to payments at regular intervals until the loans are paid off, or they can trade these loan assets in secondary markets.
Raises interest rates/changing payment due dates without warning
They buy student loans from other companies, then raise interest rates and lower their monthly payments
Navient incentivized employees to encourage borrowers to postpone payments through forbearance, an option in which interest continues to accrue, instead of income-driven repayment plans.
Provided unclear information about how to re-enroll in income-driven repayment plans and how to qualify for a co-signer release.
Bad customer service
Supplies wrong information and steers people toward costlier plan
Customer support makes error, frequently doesn’t see or process payments and sends accounts to collections quickly
Makes adjustments on borrowers accounts without their permission and claims it is their fault.
Harassment
Debtors have been subject to harassing phone calls and emails from and harassment by employees over the phone
Places accounts in deferment even if monthly payments are being made
They do not notify you before your payment is due – there is no notification setting to alert you before your payment becomes late. They just want the late fees.
Misallocated payments
Borrowers report that their payments are frequently misapplied, delayed in processing, or lost in the mail.
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