Spotlight on Student Loans:

PHEAA/FedLoan is exiting the federal student loan business

On July 8th, the Pennsylvania Higher Education Assistance Agency (PHEAA) announced that it will not renew its contract with the Department of Education. After December 14th, they will no longer service the federal student loans, including those of PSLF pursuants.

Some background on PHEAA/FedLoan

PHEAA was created by the Pennsylvania General Assembly in 1963 to manage the state’s financial aid programs for higher education. Since 2009, it has serviced federal student loans, through its subsidiary FedLoan, when it was named one of the four large agencies that would service the bulk of federal student loans.

The others were Great Lakes, Nelnet, and Navient, but the first two have since merged together. PHEAA/FedLoan currently serves approximately 9 million borrowers, including all those pursuing Public Service Loan Forgiveness (PSLF). That number grew by 1.1 million last fall when it absorbed the clients of another servicer, Cornerstone, which also exited the federal student loan business.

Like each of the other major federal loan servicers, PHEAA has a proprietary data processing system that manages their client records, which could make it difficult to transition their clients’ information to other platforms.

Why is PHEAA leaving the federal stage now?

PHEAA cites the “increasingly complex and challenging” and “cost to service” federal loans as their primary reasons for stepping aside, while desiring to refocus on their “core mission for the Commonwealth of Pennsylvania.” Another potential motivation could be the mounting scrutiny they’ve faced as the sole servicer for PSLF, which has had a dismal record of success, and for which PHEAA was publicly scorned by Sen. Elizabeth Warren.

What happens to clients of PHEAA/FedLoan now?

Regardless of their reasons for giving up federal loans, it leaves their clients in the lurch, wondering what is to come. There is little further information available at this point, beyond PHEAA’s promise that they will do “what is needed to ensure a smooth transition for borrowers,” although it’s not yet apparent what that transition will look like. Until we know what is coming next, here are some steps we recommend taking to make sure you’re on firm footing:

  • Don’t panic, you’re not alone in this!
    • Don’t take any steps with your student loans that you weren’t already planning to do, such as refinancing, recertifying, etc.
  • Keep doing what you’re doing.
    • Whether you’re using the National COVID emergency forbearance or making monthly payments, continue with that.
      • Make sure you’re set up with direct-debit when monthly payments resume so that they’re made automatically. That way, if something goes awry, it’s the servicer’s responsibility to correct the mistake, not yours.
    • Check on your recertification dates.
      • If you are set to provide your employment certification or income recertification in the month or two before or after December 14th, consider doing it earlier than that so it’s done and you get documentation ahead of time.
  • Download your important repayment and PSLF documents such as:
    • Payment history records
      • Make sure you and your future servicer know your payment history so you can prove what you’ve already paid
    • Your most recent PSLF tracker letter
      • This contains your qualified payment verification chart, which shows the number of QPs you’ve made towards PSLF. It’s just a good thing to have on hand, no matter what!
    • Any correspondence you’ve gotten in the last 12 mos regarding your IDR
      • Sometimes there’s an error in how applications are processed, so you want to have those letters as a record.

As more information becomes available, we will continue to update you via the Tips Page, Facebook, and Twitter. The government and servicers will have a lot to do over the coming months to effect this transition, but we’ll be watching and asking questions for you! Keep breathing, and if you have ANY questions about how this affects you or your loved ones, we’re always here for you. Please don’t hesitate to contact us at

For those pursuing PSLF, they’ve had the added benefit that these months of forbearance have counted toward their 120 qualifying payments required for forgiveness. The economy, however, remains fragile, and many are wondering what will happen as student payments resume in the coming monthsnot to mention the end of expanded unemployment benefits for millions of Americans.