The Department of Education (DOE) announced that PSLF Servicing Advice is being centralized at the FSA (Federal Student Aid) office through the StudentAid.gov website. The centralization will mostly affect the student loan forgiveness servicing advice and federal grant programs. This is a change in strategy, as they have normally delegated this service to one of the loan servicers in the past.
Currently, MOHELA is the loan servicer that specializes in the PSLF advice area. Prior to them, it was FedLoan Servicing. On May 1, there will be a blackout period and a pause in the processing of PSLF forms. The current blackout period is expected to end by 7/1/2024. This processing delay will allow for a transition period from MOHELA to the FSA group within the DOE.
Impact of Centralization
In March, the DOE started this transition across the other student loan servicers. Excluding MOHELA, this update is expected to be completed by the end of April. As an example, the loan servicers’ emails were converted to .gov email accounts and not the loan servicer’s name. The future support model will look similar to that of the FAFSA model. Borrowers will call a central number and be filtered to their loan servicer.
The centralization will result in each borrower having only one servicer for all of their federal loans. The loan servicers’ focus will be primarily on repayment advice and payment problems. Borrowers will no longer be required to use a specific loan servicer if they are pursuing PSLF since that will be centralized at the FSA.
I anticipate some delays in updating your PSLF credit counts on July 1 since the IDR one-time adjustments are also expected to occur in July. We recommend downloading your student loan file from the StudentAid.gov website before April 30. This way, you have a record of your current PSLF credit months. Please submit your PSLF employment verification before April 15 so your employer can submit it before the April 30 deadline.
Department of Ed Increasing Automation
Over the past few years, the DOE has upgraded the StudentAid.gov website and centralized access to different information and functionality. We have seen this with the FAFSA and student loan repayment. Depending on the systems, the results have been mixed, but it is a move to make it easier for families to find the information needed. Excluding the 2024-25 FAFSA, it has been positive.
These enhancements make the processing more efficient and require less support. On the other hand, the rules are getting more complex and are linked to other personal financial decisions. The result is that it is frustrating for consumers seeking the right answer. The DOE and loan servicers can only provide the processing rules, not the financial strategies needed.
For example, a simple tax filing change could impact a borrower’s monthly student loan payment by hundreds of dollars. The loan servicer or the colleges cannot give this advice since it crosses their legal boundary. This is when consumers start to realize they may need to pay for professional advice in certain situations. In addition, budget cutbacks have reduced loan servicing staffing and made wait times longer in many cases.
Loan Servicers Advice Is Limited
Due to the increasing complexities and the increasing use of Income-Driven Repayment (IDR), loan servicers can only provide some of the advice needed to make the best decision. They cannot legally give any tax or personal financial advice. If the borrower’s repayment is based on their Adjusted Gross Income (AGI), the loan servicer cannot provide any recommendation on tax filing advantages or ways to lower the borrower’s AGI.
The problem here is that the consumer perceives that they can provide the best advice. Borrowers’ use of IDR payment methods has almost doubled since 2016. IDR methods are used the most of the three major options on a dollar basis.
In my opinion, the DOE’s role in the student loan servicing business is transitioning more to that of our income tax model. The IRS sets the rules, and consumers need to pay professionals if they have complex situations. In this model, consumers hire tax preparer professionals to complete the IRS forms.
With the new IRS data integration into the DOE systems, borrowers will need better tax planning for both FAFSA and student loan repayment.
Single Sign-on to Your Loan Information
Later this year, borrowers will be able to sign on using the StudentAid.gov website to access all of their repayment and forgiveness information. You will not be logging into the loan servicers portal. This enhancement is part of the DOE simplification process.
This process will minimize the duplication of information. It will improve security by protecting borrowers from scams and phishing. The centralization will also minimize account disruption if servicers change.
PSLF Servicing Centralization Summary
The decision to centralize PSLF servicing will begin on May 1. There will be a blackout period until July 1, during which information updates will not be available. MOHELA will no longer be the contact servicer for PSLF processing and advice. Borrowers will be able to use any servicer since the loan forgiveness advice will be through a central contact controlled by the DOE, similar to the FAFSA process.
PayForEd will keep you updated as changes and the new rollout occur.
