Is FedLoan Servicing Legit?

Katie Taylor Updated on July 11, 2018

So, you just got a notice saying you need to register your student loans with FedLoan, and you're wondering if it's a scam. 

Probably not, but that doesn't mean it's good news. 

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The 411 on FedLoan Servicing

FedLoan Servicing has only been around for about a decade,.

The Pennsylvania Higher Education Assistance Agency (PHEAA) created FedLoan Servicing in 2009 to help the U.S. Department of Education service federal student loans. FedLoan services Federal Family Education Loans (FFEL) and Direct Loans, and they're one of only a few organizations approved by the U.S. Department of Education to do so. 

Unfortunately, FedLoan Servicing has recently been connected with a significant scandal impacting thousands of borrowers and has a reputation for poor customer service. 

The FedLoan TEACH Grant debacle 

In March 2018, NPR reported that thousands of teachers were facing significant debt loads after their federal grants had been unfairly and incorrectly converted into loans.

Here's the backstory. In 2015, the U.S. Department of Education performed an audit on the TEACH grant program after an audit by the Government Accountability Office showed some problems. The Department of Education found that approximately 10,776 grant recipients had their grants converted to loans because of errors by the loan servicer. 

FedLoan was not the loan servicer at the time, but the Department of Education brought them in to handle the problem. The Department told FedLoan that the grant recipients should be contacted and offered the opportunity to have their loans reinstated as grants. 

Unfortunately, FedLoan's response to the issue was a bit perfunctory. They did contact the grant recipients ... with a single mailed letter. They didn't check to make sure the addresses they had on file were correct or follow up with anyone who didn't respond. The letter itself stated that the grants were changed to loans prematurely, not incorrectly. 

The letter you probably missed

The letters, titled "INFORMATION ABOUT YOUR TEACH GRANTS THAT WERE CONVERTED TO DIRECT UNSUBSIDIZED LOANS," began: 

"Recently, we asked our TEACH Grant Servicer, FedLoan Servicing, to perform a quality review of TEACH Grants that were converted to loans to determine if the conversions were consistent with the program requirements outlined in the Agreement to Serve (ATS) that you signed before you received your TEACH Grants. Through this review, we learned that your TEACH Grants may have been converted to loans prematurely by your previous TEACH Grant servicer." 

At the end they provided a "Request for TEACH Grant Reinstatement" form to fill out and send in.

Only 15% of those whose grants were converted to loans responded to the letters—perhaps in part because of a title that didn't indicate the seriousness of the issue and the letter's lack of clarity. Another subset of grant recipients had their grants converted to loans because of minor errors, like paperwork mistakes, and FedLoan is making no move to restore those to their original grantee status. 

Other borrowers have received delinquent notices and been sent to collections when payments they made to FedLoan were not correctly applied to their accounts. 

If you've received a letter from FedLoan Servicing about your TEACH grant, fill out the included form and send it in (if you still have the letter). If you had a TEACH grant that is now a loan, contact FedLoan to request that the error be corrected ASAP. 

See also: Student Loan Servicers: Who They Are & Where To Find Them  

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How to avoid a student loan scam

Unfortunately, there are companies out there that prey on student loan borrowers, so if your instinct was to question this letter from a loan servicer you've never heard of, it was a good one. While FedLoan Servicing is legit, that doesn't mean every notice you get is. 

If you've been contacted by a company about your student loans, watch out for requests for fees, promises for immediate loan forgiveness, aggressive tactics, questions about personal account information, and grammatical errors. 

See also: Student Loan Payoff Scam Alert: 5 Red Flags to Look Out For

And before you do anything with a letter about your student loans, find out if it's actually from your loan servicer.

How to find out who your loan servicer is

At this point, if you don't know who your loan servicer is, you're not alone. Many people don't. Here's how you find out:

1. Head over to the National Student Loan Data System and click on "Financial Aid Review."

2. You'll have to accept the terms and conditions and then log in with your FSA ID. If you don't have an FSA ID, there's an option to create one.   

3. Once you log in, you'll see a list of your loans. You can click on the numbered identifier for each loan and then see the loan servicer's name and address at the bottom of the page.  


What to do if FedLoan is your servicer 

Unfortunately, you don't have any control over who your servicer is if you have federal loans with the U.S. Department of Education. But that doesn't mean you're out of luck. 

Refinancing your student loans is one option for maintaining a bit more autonomy over your loans. You decide who your loan servicer is because your loans are serviced by your lender. Do some comparison shopping to see which lenders provide the best terms and the best customer service, then take control of your debt.  

See also: Should You Refinance Your Federal Loans Through a Private Lender?

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About the Author
Katie Taylor

Katie Taylor is a content writer and editor with expertise in law and policy, finance, and entrepreneurship. She writes for startups and small businesses about everything from bookkeeping to telecom. Her work has been featured in The Washington Post and SheKnows.com. She is continuing to pay off law school loans and lives in Richmond, Vermont with her wife, son, and an unruly dog. Read more by Katie Taylor

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