Navient to stop servicing federal student loans. Here’s what it means for its 6 million borrowers

BY Sydney LakeSeptember 29, 2021, 6:38 PM
Students are seen on campus of the University of California, Los Angeles UCLA, in Los Angeles, as seen in September 2021. (Photo by Xinhua/Getty Images)

Education loan management company Navient announced Tuesday it plans to leave the federal student loan servicing game and pass the torch to federal contractor Maximus. This move will affect 6 million borrowers who use Navient as its federal loan servicer. 

Contract negotiations are ongoing, but are expected to be complete during the fourth quarter, according to a joint announcement from Navient and Maximus. Navient will continue to provide private student loan financing, however.

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Other federal student loan servicers, FedLoan and Granite State, announced this year they intend to end their contracts at year-end. But the Navient’s announcement is different; the servicer has made clear to where it intends for its borrower accounts to be transferred.

“This transfer is unique as the announcement of Navient ending their contract occurred simultaneously with where borrower’s loans will likely go, Maximus,” Tobin Van Ostern, cofounder at Savi, an online service that helps loan borrowers with their federal student loan repayment plans, tells Fortune. “Borrowers will have a new servicer to interact with for all issues ranging from loan repayment to forgiveness paperwork and a new servicer will need to get up to speed on the federal rules and regulations.”

There aren’t many details about how the transition itself will happen for borrowers, except that it will occur automatically. There’s plenty of disagreement, though, on whether the transfer is a good move.

How Navient’s federal student loan borrowers are affected

Navient, Maximus, and Education Department officials insist there will be a “successful transition” of borrower accounts. Student debt crisis activists, however, argue that there’s just simply too much movement happening in the federal student loan space for a successful resumption of student loan payments in January 2022.

“Both companies have been in collaborative and productive discussions with the [Education] Department’s office of Federal Student Aid about this transition for several months,” Navient President and CEO Jack Remondi wrote in a blog post published Tuesday night. “Through our diligent work over several months, we are confident that borrowers will continue to be well served, and we are committed to working together with Maximus and the Department of Education to ensure a successful transition.”

The company declined to comment any further on how borrowers will be moved to the new servicer, Maximus.

Cody Hounanian, program director for the Student Debt Crisis Center, says this move will leave borrowers in a bad place.

“In reality, Navient is leaving student loan borrowers out to dry by walking away, in the middle of a pandemic, when borrowers need help most,” he said in a statement. “The company’s last action is leaving a wake of confusion, uncertainty, and harm for borrowers and their families as we approach payments resuming again February 1.”

There won’t be many more details on how exactly this transition will happen until the new contract is approved by the Federal Student Aid office.

“These transitions could not be coming at a worse time—with tens of millions of borrowers set to restart paying their student loans for the first time in nearly two years,” Van Ostern adds. “We have already been seeing a flood of questions and confusion from our partners and users, and expect the volume to increase significantly as we approach the Feb. 1 resumption of student loan bills.”

Rich Cordray, FSA’s chief operating officer, says the office is reviewing all of the documentation to ensure it “meets all legal requirements and properly protects borrowers and taxpayers.”

“We remain committed to making sure that our federal student loan servicing agreements provide more accountability, meaningful performance measures, and better service for borrowers,” he said in a statement released Tuesday night.

Why Maximus?

Maximus may feel like an unusual choice for federal student loan servicing, since the company is better known for its mammoth heath care and tech contracts with the federal government. But Maximus already has close ties to the Education Department, working on contracts for the department’s debt management and collections system and business operations.

“This contract enables Maximus to apply our deep understanding of the needs of student borrowers and our industry-leading customer service to assist FSA in successfully serving millions of student loan borrowers,” Teresa Weipert, general manager for the U.S. federal services segment of Maximus said in a statement. 

Navient’s sticky past with federal loan servicing

In December 2020, a class-action lawsuit from nine borrowers was filed against Navient alleging that the company had fraudulently misallocated payments to extend the life of possibly millions of federal student loans. In June 2021, a federal judge in New Jersey said the borrowers could pursue the lawsuit.  

“We spent years fighting against Navient for abusing student loan borrowers while profiting from illegal business practices. The company preys on veterans, people with disabilities, and many others living on financial thin ice,” Hounanian said in a statement. “Navient should be fired, they are quitting instead.”

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