Working Toward Public Service Loan Forgiveness? You Have a New Student Loan Servicer
What's happening
Earlier this summer, MOHELA started to act as the student loan servicer for borrowers in the Public Service Loan Forgiveness program.
Why it matters
The previous servicer, PHEAA, had been accused of mismanaging accounts and preventing borrowers from receiving loan forgiveness. Some of these borrowers can now reapply for forgiveness through a PSLF waiver.
What's next
You'll be notified before and after your account is transferred. Then, you'll receive instructions on how to log into your new MOHELA account.
If you're enrolled in the Public Service Loan Forgiveness program, you'll have a new student loan servicer this summer. Approximately 2 million federal student loans are being transferred in phases from FedLoan Servicing -- operated by the Pennsylvania Higher Education Assistance Agency, also known as PHEAA -- to the Missouri Higher Education Loan Authority, or MOHELA.
This change comes after PHEAA announced last year that it would end its contract with the government and hand federal loans over to different contractors. Some federal student loan borrowers already saw their loans transferred to Aidvantage, EdFinancial and Nelnet. MOHELA will now be managing 2 million student loans that qualify for PSLF, a program that forgives student debt for eligible teachers, firefighters, nurses and other public servants who make 120 qualifying payments.
According to Federal Student Aid, borrowers will not need to take any action on their own, and transfers to MOHELA will continue throughout the summer.
A number of other changes are expected for federal loan borrowers in the coming period. On Aug. 31, the federal loan payment pause is slated to end. Unless the moratorium is extended again, around 42 million borrowers will have to resume regular payments toward their student debt. For those enrolled in PSLF who were previously rejected for forgiveness, Oct. 31 is the deadline to apply for what's called the Limited PSLF Waiver, which would allow an expanded number of public service borrowers to retroactively count loan payments and reapply for relief.
If you're enrolled in the PSLF program, here's what you need to know about why your loans are moving, when it's happening and what this means for your forgiveness status.
Why are my student loans moving?
PHEAA, which manages FedLoan Servicing, is officially ending its loan servicing contract with the federal government this December. In recent years, it has been accused of severely mismanaging PSLF loan accounts, including with inaccurate payment information, and eliminating borrowers' chances of forgiveness. A Limited PSLF Waiver enacted by the Department of Education in October 2021 offers some of these borrowers (and others) the opportunity to reapply for student loan forgiveness.
This isn't the first time in recent years that a major federal loan servicer exited the student loan industry. At the end of last year, Navient, which was also under fire for mismanaging student loans, transitioned its 5.6 million federal student loan roster to Aidvantage.
When will your student loans be transferred?
FedLoan Servicing has started transitioning its student loans to MOHELA and will continue through the rest of the summer. You may have already been notified of the change.
FedLoans will notify you 15 days in advance of your loan transfer, and MOHELA will then send you a welcome notice once the transfer is complete. Federal Student Aid will also notify you before and after your student loans are moved.
While you don't need to take any action to transfer your student loans, you should follow the directions to log into your new MOHELA account. Your current loan rates, terms, conditions, repayment plans and discharge status will remain the same. If your student loan payments are currently on hold due to the payment pause, they will stay on hold until the freeze ends.
What about your student loan forgiveness status?
Your current payment history will be transferred to MOHELA and count toward your 120 qualifying loan forgiveness payments.
If you're enrolled in PSLF and all of your loans are forgiven during the transfer period, they will be discharged and your account won't transfer to MOHELA. Since the transition is happening across several months, however, it's possible your loans could transfer before you receive forgiveness. For example, your loans might transfer to MOHELA in July before you receive student loan forgiveness in August.
If you applied for the public service loan forgiveness program through the Federal Student Aid form after May 1, 2022, your application was directed to MOHELA.
Will the PSLF waiver deadline be extended?
The Oct. 31 deadline to apply for the PSLF waiver is quickly approaching. While there's no final decision on extending the waiver beyond that date right now, Richard Cordray, chief operating officer of Federal Student Aid, is pushing to give eligible borrowers more time to apply, as he stated to a financial aid conference in June.
Applying as soon as possible is recommended, especially if you have to consolidate your loans first. If you have FFEL or Perkins loans, you'll need to consolidate them into Direct Loans before you can apply for the waiver -- a process that can take 45 days, according to Martin Lynch, director of education at Cambridge Credit Counseling. You should consolidate by the beginning of September to give yourself enough time to apply for the waiver.
What other changes are happening with student loan payments and forgiveness?
This student loan transition marks just one of the notable changes to student loans since the start of the pandemic. Federal student loan repayments have remained on hold for more than two years, and the pause could be extended again.
More than 1.6 million borrowers have had their student loans forgiven, totaling over $32 billion, since 2021. And while President Joe Biden campaigned on widespread student loan forgiveness, this promise has seen no real traction.