- Student-loan company Granite State Management and Resources is not renewing its loan servicing contract after December.
- The Pennsylvania Higher Education Assistance Agency announced the same thing 2 weeks ago.
- Close to 10 million borrowers will now have to be transferred to new servicers before the payment pause lifts.
- See more stories on Insider's business page.
Following the Pennsylvania Higher Education Assistance Agency (PHEAA) announcing two weeks ago it would not extend its federal contract to service student loans, another student loan company followed suit on Monday, bringing the total number of borrowers who will have to switch servicers to nearly 10 million.
Granite State Management and Resources (GSMR), a nonprofit student loan company that holds 1.3 million borrower accounts, notified the Education Department that it would would not seek renewal of its federal contract to service student loans after December 31, Politico first reported. As the department is planning to lift the pause on student-loan payments in October, they will now be tasked with transitioning those borrowers to a new servicer on top of the 8.5 million borrowers who previously were under PHEAA.
"FSA (Federal Student Aid) and Granite State will work together to ensure that student loan borrowers will transition smoothly to a different loan servicer," Richard Cordray, director of FSA which is part of the Education Department, said in a statement obtained by Insider. "Our wind-down plan will include early and frequent communications and clear guidance about what borrowers should expect."
Cordray added that FSA will provide strong oversight over services to ensure borrowers are "supported and not harmed during this transition."
GSMR could not be immediately reached for comment.
Over the past decade, student-loan servicers have been under close scrutiny by some lawmakers on Capitol Hill who want to ensure borrowers are protected. For example, after PHEAA's announcement two weeks ago, Massachusetts Sen. Elizabeth Warren said borrowers can "breathe a sigh of relief" knowing their loans would no longer be managed by "an organization that has robbed untold numbers of public servants of debt relief."
A PHEAA spokesperson said in a statement at the time that since the company accepted the terms of its federal servicing contract, the loan programs have grown "increasingly complex and challenging while the cost to service those programs increased dramatically."
And GSMR fell under scrutiny, as well. Since 2019, the Consumer Financial Protection Bureau (CFPB) - an agency that Warren spearheaded to protect consumers - has received 56 complaints from borrowers about the company, with the main complaints surrounding inaccurate credit reporting, communication with the company, and attempts to collect debt not owed.
Insider reported that communication from servicers is a big issue with borrowers who could have paid off their debt but couldn't seek help from the company that was charging them for their loans.
The Education Department has not yet announced which companies will take over GSMR's borrower accounts, and this development will likely serve as ammunition for Democrats' calls to extend the pause on student-loan payments to allow more time to deal with these administrative difficulties.
"Nobody's ready for student loan payments to resume," Warren wrote on Twitter. "Not borrowers. Not the student loan companies. And certainly not our economy. We must extend the pause on payments and #CancelStudentDebt."