How Much Do Federal Student Loan Servicers Make Per Loan?

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    how much federal student loan service providers earn

    Often times, borrowers believe that student loan service providers can keep the interest on the loan. But that’s not how it works.

    Service companies collect principal and interest payments on behalf of the loan holder (Ministry of Education for federal loans). In return, they receive a monthly fee for each loan they manage.

    How Much Do Federal Student Loan Service Providers Make Per Loan? Below we explain how their fees are determined and how this can affect the customer service and advice they provide.

    How Much Do Federal Student Loan Servicers Make?

    How are loan processing fees determined?

    There are two approaches to determining how much federal student loan service providers make per loan. These are:

    • Percentage basis – A small percentage of the outstanding credit balance
    • Unit cost basis – A fixed dollar amount

    Originally, federal loan service providers like Fedloan and Nelnet received a fixed percentage of the outstanding loan balance per year. 90 bp (0.90%) was typical. Since this fee is based on the loan balance, it would decrease as the loan repaid.

    Today servicers receive a fixed dollar amount per loan every month, regardless of the loan balance. The amount of the flat fee varies depending on whether the loan is current or past due.

    Unit cost basis

    Table 1 below shows how much federal student loan service providers are making each month. (The third column shows the annualized amount.) This table is based on the 2014 contracts for: Navient, Great Lakes, Nelnet and PHEAA (Fedloan Servicing).

    Typically, a five-year contract can be extended by the Department of Education.

    Delinquent (151-270 days)

    The loan service providers also receive $ 27.35 per consolidation. When a loan is consolidated, loan support is usually reassigned to a different loan service provider. These service fees are slightly different from the 2009 contract shown in Table 2.

    Delinquent (151-270 days)

    Borrower repayment fees have been capped at 3 million borrowers. Beyond that limit, the fees were $ 1.90 per borrower per month. Likewise, the fees for lenient borrowers have been capped at 1.6 million borrowers. Beyond that limit, the fees were $ 1.73 per borrower per month.

    The 2011 Non-Profit Loan Service Provider Agreement, last updated in 2019, has slightly higher fees, as shown in Table 3 below.

    Delinquent (151-270 days)

    Follow the fee schedule

    If a borrower is current for the entire duration of a 10-year repayment plan, the loan service provider will receive $ 342.00 plus $ 47.25 for the school time and $ 10.08 for the grace period over the repayment period. That’s a total of $ 399.33 per borrower.

    If the borrower is current for the entire duration of a 25 year repayment plan, the loan service provider will receive $ 855.00 plus $ 47.25 for the school time and $ 10.08 for the grace period over the repayment period. That’s a total of $ 912.33 per borrower.

    Customer service

    But how much do federal student loan service providers make if the borrower is late with a payment or forbearance or forbearance? If so, they’ll be paid much less, possibly just $ 54.00 over a 10 year repayment period.

    If a borrower is 271 days or more in default, the service charge of $ 0.45 is insufficient to cover the cost of a 5 minute call to the borrower or postage for a letter to the borrower.

    Because of this, loan servants use a lot of automation. It also means that the service fees for current borrowers subsidize the cost of maintaining the criminal borrowers.

    Repayment recommendations

    Some borrower advocates have argued that there is an incentive for loan service providers to indulge in income-driven repayment (IDR) because it takes less time to declare an forbearance. This idea may certainly have had its justification in the past. For example, in the 2011 contract, you’ll find that servicers got only four cents more for “payback” loans than they did for forbearance loans.

    With the most recent fee structure (see Table 1 above), a for-profit lender earns more than 2.5 times per month from a borrower on an IDR plan. In fact, the current fee schedule pays more than a forbearance loan for almost any loan status (with the only exception that a borrower is more than 270 days in default).

    The fee structure also provides a financial incentive for credit servicers to restore criminal borrowers to good reputations as they are paid more for a current borrower than they are for a criminal borrower.

    Final thoughts

    Loan servants have a financial incentive to keep as many borrowers informed as possible and to keep phone calls as short as possible.

    Loan servants also have a financial incentive to keep borrowers in repayment for as long as possible. You will earn more with a borrower who is on an advanced repayment plan than a borrower who is on a standard repayment plan. They earn the same monthly fee, but they earn it over a longer period of time.

    Learn How To Choose The Best Student Loan Repayment Plan >>>

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