Less than five months after it announced it was exiting the student loan servicing business, the Pennsylvania Higher Education Assistance Agency — more commonly known as PHEAA — disclosed on Thursday that it had reached an agreement with the Education Department to extend its contract for one year to allow more time to transition students to other servicers.
The agreement was originally scheduled to expire on December 14. In its announcement, PHEAA said it was willing to “entertain a short-term extension as necessary to ensure a smooth transition” for the 8.5 million loans that it services on behalf of the Department of Education. It reiterated its stance that it is not interested in a long-term extension of its contract.
PHEAA had been working with the Department of Education to service student loans for the past 12 years. The original agreement was for 10 years when it was signed in 2009, but was extended through the end of this year while the Education Department overhauled its servicing platform. PHEAA said the increasing complexity and cost of handling loans were the reasons it announced its decision to stop servicing federal student loans.
The extension will likely be received with a sigh of relief inside the walls of the Education Department. Along with restarting the process of having individuals with student loans start making payments again in January — after nearly a two-year pause due to the COVID-19 pandemic — the Education Department also recently announced it was canceling contracts with private collection agencies and reassigning those accounts to other customer service companies.
For PHEAA, the extension does mean it will likely continue to feel the wrath of Sen. Elizabeth Warren [D-Mass.], who has been incredibly critical of the company’s efforts at working with individuals. At the time it announced its intention to not extend its contract with the Education Department, Sen. Warren said, “Millions of loan borrowers can breathe a sigh of relief today knowing that their loans will no longer be managed by PHEAA, an organization that has robbed untold numbers of public servants of debt relief and was recently caught lying to Congress about its atrocious record of fines and penalties.”
