Major Student Loan Servicing Change Will Impact 1 Million Borrowers (2024)

An abrupt change to a sector of the U.S. Department of Education’s sprawling student loan servicing system will impact around one million student loan borrowers, sending ripples through the industry. And more changes may be in store.

Cornerstone, one of the Education’s Department’s key student loan servicers, abruptly terminated its contract with the government’s Office of Federal Student Aid, effective immediately. Over one million student loan borrower accounts with Cornerstone will now be transferred to other student loan servicers. Cornerstone is the trade name of the Utah Higher Education Assistance Authority (UHEAA).

“After careful consideration, the decision to terminate the federal student loan servicing contract was made in the best interest of the State of Utah and our organization and its long-term financial sustainability,” said David S. Schwanke, Interim Executive Director of UHEAA in a statement. “We regret that the decision to end the contract with the U.S. Department of Education’s Office of Federal Student Aid negatively impacts so many of our highly valued employees, and we’re committed to helping them through this transition over the coming months.” UHEAA blamed ongoing financial losses for its decision to terminate the contract.

The Department of Education reportedly intends to transfer borrower accounts impacted by the Cornerstone contract termination to FedLoan Servicing, which is operated by the Pennsylvania Higher Education Assistance Agency (PHEAA). FedLoan Servicing and PHEAA have been the subject of widespread criticism and multiple lawsuits due to allegedly poor student loan servicing practices.

The Cornerstone saga may be just the beginning of a wave of student loan servicing changes that could impact millions of additional student loan borrowers in the coming year. Earlier this year, the Education Department announced its intent to proceed with a huge overhaul of its federal student loan servicing system. In a Junepress release, the Department indicated that it signed servicing contracts with five new companies, which would subsequently take over much of the sprawling federal student loan portfolio: EdFinancial Services, F.H. Cann & Associates LLC, MAXIMUS Federal Services Inc., Missouri Higher Education Loan Authority (MOHELA), and Texas Guaranteed Student Loan Corporation (Trellis Company). Education Secretary Betsy DeVos has argued that the servicing changes will lead to better outcomes and greater accountability.

Some existing student loan servicers, such as NelnetNNI and Great Lakes Higher Education, were not awarded new servicing contracts. As a result, millions of student loan borrowers could end up having their student loans transferred to one of the new loan servicing companies.

The current servicing contracts were set to expire onDecember 14, 2020, but in August, the Education Department provided additional details about the servicing overhaul in ablog post. “Even though we awarded the contracts [to the five new servicing companies], these companies won’t start doing this work immediately,” wrote Federal Student Aid’s Chief Operating Officer Mark Brown. “We’ve got to first put the tools, technology, and training in place to ensure that you get the right answer with every interaction.”

Brown indicated that existing Department servicing contracts with FedLoan Servicing, Great Lakes, Navient, and Nelnet were extended through December 2021, and further extensions for Granite State, Edfinancial, MOHELA, and OSLA Servicing have been extended through March 2022. Cornerstone was part of those contract extensions as well, but the termination of its contract with the Department has scrambled this timeline. The Department of Education had assured student loan borrowers that for the time being, “there’s no impact to how your federal student loans are serviced.”

That assurance now seems to have been premature.

Further Reading

Judge Slams DeVos For Blanket Denials Of Student Loan Forgiveness, Cites “Irreparable Harm” To Borrowers

Biden Affirms: “I Will Eliminate Your Student Debt”

Biden’s Income-Based Student Loan Plan Would Dramatically Lower Payments For Some — Here’s How

How “Cancel Student Debt” Went From A Fringe Idea To Mainstream

Elizabeth Warren And Chuck Schumer: The Next President Must Cancel Student Debt Without Congress

Dept. Of Education Tells Court It Has Denied 94% Of Loan Forgiveness Applications

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