The Education Dept. approved student-loan company Navient's request to shut down its services.
The 6 million federal borrowers under Navient will be transferred to another company, Maximus.
Federal Student Aid head Richard Cordray said Maximus will be held to higher standards.
The Education Department on Wednesday approved student-loan company Navient's request to shut down its federal services, becoming the third company to do so this year before student-loan payments resume in February.
According to a press release last month, the six million borrowers who currently pay their federal student loans to Navient will be transferred to Maximus, a company that services government loans. The Pennsylvania Higher Education Assistance Agency (PHEAA) and Granite State Management and Resources, servicing a combined 10 million borrowers, are ending their contracts, as well.
Federal Student Aid head Richard Cordray said in a statement the agency's confidence in the handover "is bolstered by the fact that Maximus will be held to the stronger standards for performance, transparency, and accountability that FSA included in its recent servicer contract extensions."
Navient announced their request to transition their federal accounts to Maximus last month, and Navient CEO Jack Remondi wrote in a blog post that both Navient and Maximus have been working with the Education Department over the past months to ensure a smooth transition for the borrowers, saying he is "confident borrowers will continue to be well-served" during and post-transition.
"Maximus will be a terrific partner to ensure that borrowers and the government are well served, and we look forward to receiving FSA approval," Remondi said.
This was welcome news to lawmakers like Massachusetts Sen. Elizabeth Warren, who has held Navient in her sights for years and accused it of misleading borrowers.
"Navient has spent decades misleading, cheating, and abusing student borrowers," Warren told Insider following Navient's announcement last month. "The Federal student loan program will be far better off without them."
Insider reported in April that during a hearing on student debt, Warren told Remondi that he should be fired for "actions that ripped off borrowers," including the improper marketing of loans and failing to notify borrowers of their rights.
And Student Borrower Protection Center Executive Director Seth Frotman said in a statement that "millions of Americans with student loans will no longer be forced to rely on a company that puts padding its own profits at the expense of its customers."
Notably, Cordray said during remarks at a conference earlier this month that student-loan companies are choosing to shut down rather than face more accountability. To be sure, he did not comment on specific companies but noted that "not everybody was thrilled" with his plans to strengthen oversight of the industry.
Navient's transfer of 6 million borrowers will likely add to the administrative burdens the Education Department will be tasked with in February. Student-loan payments have been on pause for the duration of the pandemic, and the department will have to restart those payments for the 43 million borrowers with federal student loans, along with transitioning 16 million borrowers to new student-loan companies.
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