Major student loan servicing changes are coming — here's how you can protect yourself

The U.S. Department of Education does not service federal student loans itself but instead contracts with outside companies to handle the process of collecting payments and providing customer service. That means they can determine when to make student loan servicing changes.

In a recent press release, the Department announced it has now contracted with five new companies that will take responsibility for servicing many of the outstanding student loans borrowers owe. These companies include EdFinancial Servicers; F.H. Cann & Associates LLC; MAXIMUS Federal Services Inc., Missouri Higher Education Loan Authority; and Texas Guaranteed Student Loan Corporation. The Education Department has also severed ties with some existing loan servicers, including Great Lakes and Nelnet.

Millions of borrowers could be forced to change student loan servicers and deal with a different company when paying their loans, switching loan payment plans, or taking other steps to manage their repayment plans. As these federal student loan servicing changes take effect, borrowers will need to protect their interests. There are a few key steps to ensure that:

• Step 1: Obtain records from your existing servicer
• Step 2: Make copies of all communications with servicers
• Step 3: Monitor your credit report
• Step 4: Check your account online regularly

Step 1: Obtain records from your existing servicer

It's important to be able to prove you've reliably made payments on your loans in case your payment record doesn't transfer over properly when your loan switches to a new servicer.

Proof of your payment history can help you ensure you get credit for every payment if you're trying to qualify for Public Service Loan Forgiveness or trying to get your remaining loan balance forgiven after making the requisite number of payments on an income-driven plan. But it can also be important if your account balance is incorrect or inaccurate information is reported to the credit bureaus.

Most loan servicers will allow you to download your payment history directly from your account, so take action to do that quickly and keep the records in a safe place in case there's ever any question about past payments you've made.

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Step 2: Make copies of all communications with servicers

Records of any correspondence you've had with your current servicer typically will not be transferred to your new one. That means if there's a question in the future about any aspect of your payment history or your arrangement with your servicer, the records may not be available.

To make sure you don't end up without the proof you need if there's a dispute about some aspect of your loan or payment history in the future, keep a copy of any communications from your current servicer. You may want to have both a hard copy and a digital one so you don't risk losing important documents if you need them later.

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Step 3: Monitor your credit report

When your student loan changes servicers, that increases the chances of misinformation being reported on your credit history during or after the transfer process. Since your credit score can affect costs of borrowing for years to come, impact employment opportunities as well as the cost of car insurance, you can't take a chance of misinformation being posted on your report.

To make sure no information is reported in error, it's a good idea to check your credit report at least every few weeks after the switch to a new loan servicer. If inaccurate information is posted on your credit report, you can dispute it. In fact, this is one example of a situation where your payment records and copies of your correspondence could come in handy. 

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Step 4: Check your account regularly

As you transition to paying your new loan servicer, it's possible payments may not be processed accurately. You could also accidentally miss instructions on how to update your payment process or pay by the deadline. To make sure that doesn't happen, create an online account with your new loan servicer as soon as possible and check in regularly.

By logging into your online account at least once a month, you can check to see that your payment was properly processed and applied, that there are no surprise fees or unexpected costs, and that you're receiving any discounts you were entitled to. 

If you were set up to auto-pay your balance before, chances are good you'll also need to set that up with your new servicer. This can take time, so do it as soon as possible to avoid missing a payment. You should note, however, your monthly payment amount will not change when you switch servicers unless you opt to change your payment plan.

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Can you avoid a change to your student loan servicer?

When you have federal student loans, you don't have control over who your student loan servicer is — you have to settle for the servicer you're assigned by the Department of Education. While you can refinance with a private lender if you don't like the servicer you're dealing with, that would mean giving up substantial borrower benefits.

If you have private student loans, on the other hand, you can refinance if you don't like your loan provider or if you want to change your loan terms. You won't be giving up key benefits if you refinance private loans as you'd simply change from one private lender to another.

You can visit Credible to get pre-qualified student loan refinancing rates without affecting your credit score.

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It's also wise to use an online student loan refinancing calculator to get an idea of what your new monthly payments could be if you refinance your loan. This will help you decide if refinancing is right for you.