January 1, 1970

How Federal Student Loan Servicing Has Changed

Boxes being moved out of a federal government building, representing servicers exiting the student loan system

In five years, the companies managing your federal student loans have been nearly entirely replaced. The two biggest servicers both exited the business. Their successor became the most complained-about servicer in the country before the government finally started penalizing it and moving accounts away. Congress rewrote the repayment menu in 2025. And collections — paused since March 2020 — resumed in May of that year, with 7.7 million borrowers already in default. If your mental model of how your loans work is more than two years old, there's a real chance it no longer reflects reality.

The Servicer Exodus (2021–2022)

It didn't start with a federal mandate. It started with companies deciding federal servicing wasn't worth the trouble.

Navient announced in September 2021 that it was exiting federal student loan servicing, transferring 5.6 million borrower accounts to Maximus Education, which rebranded as Aidvantage. A few weeks later came the larger shock: PHEAA — the Pennsylvania Higher Education Assistance Agency, operating under the brand FedLoan Servicing — announced it would not renew its Department of Education contract. FedLoan managed 8.5 million borrowers and more than $350 billion in loans. It also ran the entire Public Service Loan Forgiveness program.

Granite State Management and Great Lakes made similar decisions around the same time. The pressure points were largely the same across all of them: intense regulatory scrutiny, public criticism that followed every processing error, and margins too thin compared to private lending.

The writing was on the wall for years. The pandemic just accelerated the exits.

Between December 2021 and summer 2022, millions of borrowers received transfer notices from companies they'd never chosen. MOHELA, a Missouri-based nonprofit, absorbed the bulk of FedLoan's portfolio and took over PSLF servicing entirely. Other accounts went to EdFinancial, Aidvantage, and Nelnet.

The transitions were messy. Borrowers reported payments going to wrong servicers, PSLF payment histories vanishing mid-transfer, and weeks of inaccurate billing. For standard loans, a billing disruption is annoying. For PSLF borrowers, a miscounted payment is a miscounted month of public service credit — and those months don't come back easily.

How the System Was Rebuilt

Rather than scramble to recruit more servicers, the Department of Education used the exodus as a chance to restructure the contract model from scratch.

In April 2023, the Department announced it would consolidate to five servicers going forward: MOHELA, Nelnet, EdFinancial, Maximus Education (Aidvantage), and Central Research, Inc. The old arrangement had spread accounts across ten or more companies with inconsistent quality standards and limited accountability.

More important was the contract redesign. Under the prior system, servicers were paid largely per-account regardless of quality. The new contracts tied compensation to performance metrics: call wait times, billing accuracy, and borrower retention in affordable repayment plans. The Department also built out clearer transfer notification requirements and new complaint escalation pathways through the FSA Ombudsman.

These were genuine improvements in design. The problem was enforcement speed — by the time new accountability mechanisms produced real consequences, some servicers had already harmed hundreds of thousands of people.

Here's the current servicer lineup:

Servicer	Role	Notes
MOHELA	General + PSLF	Volume reduced via transfers; PSLF portfolio being moved
Nelnet	General	Received significant transferred accounts
EdFinancial	General	Historically fewer borrower complaints
Aidvantage (Maximus)	General	Former Navient portfolio
Central Research, Inc.	Limited	Smaller role; commercial FFEL loans

MOHELA: The Clearest Case of What Goes Wrong

MOHELA grew from a regional servicer to managing roughly one-third of all federal student loans plus the entire PSLF portfolio in under two years. The growth outpaced the company's systems, staffing, and internal controls by a significant margin.

The October 2023 billing failure was the first moment this became impossible to ignore. The Department of Education disclosed that MOHELA had failed to send monthly bills to 2.5 million borrowers. Around 800,000 borrowers missed payments as a direct result. For income-driven repayment borrowers, a missed payment can still count toward forgiveness — but only if the servicer records it correctly. For PSLF borrowers, a missed month shows as a gap in qualifying payment count (a gap that doesn't get restored without a formal dispute process).

MOHELA made over 1.5 million more billing errors than all other servicers combined during this stretch. Call wait times averaged roughly 40 minutes — seven times longer than the second-worst servicer. The call abandonment rate was the highest in the system.

Both the FSA Ombudsman and the CFPB's Student Loan Ombudsman independently concluded in 2024 that MOHELA generated more borrower complaints than any other servicer in the country, by a margin that far exceeded its share of the market.

In July 2024, the American Federation of Teachers sued MOHELA, alleging a range of unlawful practices: deliberately deflecting callers before they reached service agents, unauthorized debits from bank accounts, and intentional misinformation about paperwork deadlines that pushed borrowers out of affordable repayment plans.

A Senate investigation led by Senator Elizabeth Warren found that MOHELA may have contributed to nearly 2 million student loan duplication errors on borrowers' credit reports between January 2023 and August 2024. Those errors affected mortgage applications, refinancing rates, and hiring decisions.

In October 2024, the Department withheld $7.2 million in servicer payments from MOHELA as a formal financial penalty. Starting in April 2024, more than 1 million MOHELA borrowers were transferred to competing servicers. The PSLF portfolio was slated for complete transfer by end of 2025.

The penalty came too late and was too small. Reports of systematic failures were available months before formal action arrived. The new performance-based contracts were designed to create accountability — but they still required slow manual enforcement. Millions of borrowers paid the difference.

The Policy Layer: SAVE, IDR, and the 2025 Overhaul

Servicer failures are damaging on their own. They become layered disasters when borrowers are simultaneously navigating policy changes that require accurate recordkeeping to survive.

The Biden administration launched the SAVE plan (Saving on a Valuable Education) in 2023 — the most generous income-driven repayment option in history, with payments as low as 5% of discretionary income for undergraduate borrowers. Around 8 million people enrolled. A federal court blocked it in mid-2024, and those borrowers were placed in administrative forbearance: a limbo status that doesn't count toward forgiveness timelines for most programs. A 2025 legal settlement formally ended SAVE.

Those 8 million borrowers still need replacement plans.

Then Congress acted. The One Big Beautiful Bill Act, signed in summer 2025, restructured the entire repayment system. Three plans are being eliminated:

SAVE — ended immediately (2025)
PAYE — phased out by July 2028
ICR — phased out by July 2028

They're being replaced by the existing Income-Based Repayment (IBR) plan and a new Repayment Assistance Plan (RAP). Most analysts project RAP will cost more per month for average borrowers, with a 30-year forgiveness window instead of 20-25 years.

Plan	Status	Forgiveness Timeline
SAVE	Eliminated (2025)	N/A
PAYE	Gone by July 2028	20 years
ICR	Gone by July 2028	25 years
IBR	Retained	20–25 years
RAP (new)	Effective 2026	30 years

Borrowers with no new loans before July 1, 2026 retain access to legacy plans through June 2028. After that: Standard, IBR, or RAP.

One change that deserves a standalone warning. Starting January 1, 2026, loan balances forgiven through income-driven repayment are taxable as ordinary income. The temporary federal tax exemption expired at year-end 2025. Someone receiving a $50,000 forgiveness event could face a significant federal tax bill in the same calendar year — the so-called tax bomb that advocates have been warning about for a decade is now real.

PSLF: Progress Stalled by New Complications

Public Service Loan Forgiveness had an approval rate below 2% for most of its first decade. The Biden administration's 2021 waiver started clearing the backlog, applying retroactive credit and correcting the technicalities that had wrongly rejected thousands of public servants. Approvals climbed substantially.

New regulatory complications arrived in 2025. A Trump administration rule published October 30, 2025 — set to take effect July 1, 2026 — would allow the Department to disqualify employers from PSLF eligibility for 10-year periods based on activities including immigration advocacy, DEI programs, or certain lobbying work. Three separate lawsuits challenge the rule.

The practical risk is concrete: if your employer gets disqualified after you've spent years building qualifying payments, those payments may stop counting. Courts may block the rule before July 2026, but borrowers shouldn't change jobs on speculation. Track the litigation.

The IDR processing backlog — a downstream effect of servicer failures and SAVE litigation — stood at 576,609 pending applications as of February 28, 2026, the lowest figure since courts began requiring these disclosures. Progress, but those are still over half a million people waiting for answers about their repayment plans.

Where Things Stand in 2026

Collections on defaulted loans resumed May 5, 2025 — the first active collection activity since March 2020. As of December 2025, 7.7 million borrowers were in default, representing $180 billion in federal loans. Wage garnishment, tax refund seizure, and Social Security benefit offset are all back in play.

The scale here is not small. Around 2.5 million additional borrowers moved into default between September and December 2025 alone. This isn't a population that slipped through the cracks — it's a systemic failure of the repayment restart that touched every servicer in the system.

If you're in default or approaching it, the window for avoiding collection consequences without damage is essentially closed. Loan rehabilitation and consolidation remain available, but both require active outreach to your servicer. Waiting is not a strategy here.

The consolidation to five servicers was the right structural call. Fewer companies, clearer contracts, performance-based accountability — all of that was overdue. Whether enforcement now moves fast enough to prevent the next MOHELA-scale failure is the question the system still hasn't answered.

Bottom Line

The federal student loan servicing system has gone through its biggest structural transformation in decades. Here's what to act on:

Check your servicer now. Log into studentaid.gov and confirm who holds your loans. Transfers don't always arrive cleanly, and an unread notice can mean missed bills.
PSLF borrowers: verify your payment count before July 2026, when new employer eligibility rules could take effect. Don't rely on pending lawsuits to protect you before confirming your count.
If you were in SAVE, call your servicer and confirm which plan you're moving to. Ask specifically whether forbearance months during the SAVE litigation will count toward your forgiveness timeline.
The IDR tax exemption is gone. If your forgiveness event is approaching, talk to a tax professional this year — the math changed at the start of 2026.
Defaulted borrowers need to act immediately. Collections have real teeth again. Ask your servicer about rehabilitation or consolidation options now.

Frequently Asked Questions

What happened to FedLoan Servicing?

FedLoan Servicing, operated by PHEAA (Pennsylvania Higher Education Assistance Agency), announced in 2021 that it wouldn't renew its Department of Education contract. By December 2022, its 8.5 million borrowers had been distributed among MOHELA, EdFinancial, Aidvantage, and Nelnet. PHEAA continues operating as a state-level agency in Pennsylvania but no longer services federal loans.

Why did MOHELA struggle so badly after taking over from FedLoan?

MOHELA absorbed FedLoan's entire portfolio — including the PSLF book — in under two years, faster than its infrastructure could handle. The result was billing failures at a scale no other servicer came close to matching, collapsed call wait times, and widespread credit reporting errors. Rapid growth without matching operational capacity is a classic failure mode; MOHELA just happened to fail with millions of highly exposed borrowers.

If my loan is transferred to a new servicer, do my terms change?

Your interest rate, repayment plan, and forgiveness eligibility are supposed to carry over unchanged. In practice, verify: re-enroll in auto-pay with the new servicer (it doesn't transfer automatically), confirm your PSLF payment count in the official tracker on studentaid.gov, and check that your IDR payment history came through correctly. Errors during transfers are common enough that a few minutes of verification is worth doing.

Is the SAVE plan ever coming back?

No. A 2025 legal settlement permanently ended SAVE, and the One Big Beautiful Bill Act removed the regulatory authority that created it. The Repayment Assistance Plan (RAP) is the intended replacement starting in 2026, but it's generally projected to result in higher monthly payments than SAVE provided for most borrowers.

Does IDR forgiveness count as taxable income now?

Yes, starting in 2026. The temporary federal tax exemption expired at the end of 2025. Any balance forgiven through income-driven repayment is now treated as ordinary income in the year of discharge. If you're approaching a forgiveness event, factor in the resulting federal tax liability well before that year arrives.

What should I do if I'm currently in default?

Contact your servicer immediately and ask about loan rehabilitation or direct consolidation. Collections — including wage garnishment and tax refund seizure — resumed in May 2025 and are fully active. Loan rehabilitation typically requires nine months of qualifying payments to complete. The sooner you start, the sooner you exit the collections window.