The Health Care Reconciliation bill of 2010 pretty much stated that there was too much of the government backing loans made to students via private lenders, as well as lending the government’s money to students for additional loans. To put a halt to it all, the government switched all of their loans, which were serviced through the Department of Education, to new loan servicing companies. Apparently, it wasn’t to any lender in particular, offering no rhyme or reason. This change came with no warning and no advice to lenders.
Responsible student loan borrowers would soon learn of this through alarming methods. Some of these methods were logging into their National Student Loan Data System and discovering their loan was now at a zero dollar balance. The calls would soon flood the Department of Education phone lines with concerns of high interest, assumed missed payments, and defaulted loans. Once explained what has happened, the concerns shifted to why notifications were not sent, who were these new lenders and if they had good lending practices.
Some borrowers experienced issues having their automatic payments set up properly. Others had their monthly payment amounts and schedules shifted. Many would think a lower payment would be better and more affordable. Some people may have taken this as a great new start. Others looked at it as a scam. The lower the payment meant more outstanding balance to have the interest accumulate on. This also extends the life of the loan to be paid off, in some cases from five to seven years or possibly more. Not knowing their loans were switched over and payments not going through means they were falling behind on their payments and any student loan is reported on the credit report.