I’ve been contacted by several of you during the past week, saying that you have been notified that your federal student loans are being transferred to a new federal loan servicer. For many of you, this may be your second, third, or even fourth transfer to a new loan servicer in the past couple of years. That is, in my opinion, just ridiculous. So what exactly is going on?

By way of background, the U.S. Dept. of Education (which I will call “ED” for the sake of simplicity) used to service Direct federal student loans “in-house,” meaning that ED ran the day-to-day operations of the Direct loan program (billing, loan status, application processing, etc.). Starting in 2012, ED began to contract out the servicing operations to various private companies such as Sallie Mae, MOHELA, Great Lakes, ACS, and others. This was (as many of you experienced) not the smoothest of transitions.

Well, the process is not quite over. In a bulletin issued last month, which was directed to the financial aid community but NOT actual federal student loan borrowers, ED announced that ACS (one of the contracted loan servicing companies for the Direct loan program) will begin ceasing operations as a contracted Direct federal loan servicer. Many of you who contacted me had ACS as your servicer, so this makes sense. Other changes in servicing companies may occur as well during the course of the next two months (August and September), as described in the bulletin.

The bulletin indicates that borrowers will be notified in advance of these changes, but (unsurprisingly) borrowers are sometimes not being notified until the transfer has already occurred. To protect yourself, I suggest the following:

• Federal loan borrowers should monitor your online accounts closely and frequently (particularly if you are enrolled in an auto-payment program), and watch your mail and email for any correspondence from your servicer or the Dept. of Education.
• Importantly, if you are enrolled in an auto-payment program, the automatic payments may not continue when you are transferred to the new loan servicer, and you will have to re-establish the auto-payment program with your new loan servicer or make your payments manually.
• If you are notified of a transfer, contact your existing loan servicer and new loan servicer to determine where things are in the process and what you should do about your monthly payments during the transfer.

ED is saying that these transitions should be fairly seamless, but, well, it’s the U.S. Dept. of Education, so, no.