Four giant corporations are contracted with the government to process nearly all federal student loan payments. These companies have a poor track record of communication failures, fraud, and abuse. Yet, Great Lakes Education Loan Services and Nelnet are merging to create a student loan servicing company that advocates worry is ‘too big to fail.’ Here is a piece from MarketWatch that explains what this merger could mean for students and borrowers.
This piece was originally published at MarketWatch.
Every month, approximately 40 million Americans make payments to a corporation they know almost nothing about.
There are just four major companies contracted by the federal government to process the nation’s student loan checks and after the just-completed merger of two of these firms — Nelnet Inc. NNI, -0.78% and Great Lakes Educational Loan Services Inc. — one company will handle more than 40% of all payments.
While it might not seem to matter who processes the payments, these companies have an outsize role in the shape of America’s $1.4 trillion student-loan burden. Though the rising cost of college and stagnant wages are the most cited reasons for our nation’s student-debt problems, borrower advocates, law-enforcement officials and the Consumer Financial Protection Bureau have said the student-loan industry itself is also to blame. These processors can often make the difference for struggling borrowers between successfully paying down a debt and the nuclear option — default.
In an ideal world, no federal student-loan borrower would default on his or her debt, thanks to the myriad of programs available through the government, but, in reality, roughly 1 million defaulted last year — a sign, advocates say, that student-loan servicers don’t work sufficiently in borrowers’ best interests.
As of September 2017, Nelnet and Great Lakes combined serviced the largest entity of loans.
All of which is why the merger of two of these entities is important to watch. Nelnet announced Wednesday that it had completed the merger after the Department of Justice initially requested more information…