Loans

What Is Loan Servicing?

Updated on January 25, 2022

A couple looks over their loan documents. — Photo:
shapecharge / Getty Images

Definition

Loan servicing is the process that a company, known as the loan servicer, goes through to collect payments, interest, and escrow (if needed) from borrowers of loans.

Key Takeaways

Loan servicers are responsible for collecting payments, managing your loan, and communicating any important information about the loan.
Your lender can also be your loan servicer, or it can be another company your lender uses.
Loan servicers manage all different types of loans, but mortgages are the most common.
Loan servicers are held to certain legal and federal regulations.
If you’re having trouble with your loan servicer, you can file a complaint with the CFPB, FTC, or Department of Education.

Definition and Examples of Loan Servicing

Loan servicing is the process of ensuring that loan payments are collected from borrowers. For example, if you have a personal loan, your loan servicing company is the one that sends you monthly billing statements, processes your payments, responds to your requests, and maintains your loan records.

Some well-known loan servicers include student loan servicers Nelnet, Great Lakes, and Navient.

Alternate name: Mortgage servicer, student loan servicer, payment servicer

How Does Loan Servicing Work?

Your loan servicer is responsible for the day-to-day management of your loan and collecting monthly payments.

Your servicer must comply with additional federal and legal requirements, too. For instance, if you have a mortgage, your loan servicer is required to:

Apply your payment to your loan the same day it’s received
Tell you your current payment amount
Contact you about missed payments
Give you detailed information about your payment history

A mortgage servicer will also manage your escrow account and use it to make escrow payments for taxes and insurance as they come due each year.

Note

Mortgage servicers send you an annual statement summarizing your account balance, property tax payments, homeowners insurance, and other activity on your account. And if your mortgage is transferred to a new loan servicer, your servicer must notify you at least 15 days before the transfer.

Types of Loan Servicers

There are student loan servicers, personal loan servicers, and even mortgage servicers. However, each of these may be one type of loan servicers, such as a bank, online lender, or even a third-party company.

Banks

Until the financial crisis of 2008, banks commonly originated and serviced loans, and some still service loans today. But due to the exponential growth of the lending industry, banks often hire other companies to handle the servicing for them.

Non-Bank Lenders

If you used a non-bank lender to take out a loan, such as an online personal loan lender, then that company may choose to service the loan in-house.

Third-Party Vendors

Because of the work involved in loan servicing, banks and financial institutions often use third-party vendors to service loans. These companies are responsible for maintaining the loan and ensuring it complies with state and federal regulations.

Do I Need a Loan Servicer?

If you’ve taken out a mortgage, personal loan, or student loan, you'll need a loan servicer. Your servicer is responsible for keeping you up to date on your payment terms, answering your questions, and communicating important information about the loan.

Loan Servicers vs. Lenders

Loan Servicer	Lender
Manages the daily aspects of the loan	Approves, funds, and disburses loans
Either the lender or a third-party company the lender hires	Can service the loan, but usually hires a third-party
Sends monthly billing statements and collects payments	Receives monthly payments from the servicer

What Loan Servicers Mean for Borrowers

When a borrower takes out a loan, the lender decides who will service that loan. It’s important to know who your loan servicer is because you will have frequent contact with that company.

Note

To find out who your loan servicer is, contact the lender you secured the loan through. It may also say who the loan servicer is on your annual or monthly statement.

Aside from making payments on your loan, you can contact your servicer if you’re having trouble making your monthly payments or have questions about your loan.

Occasionally, borrowers run into issues with their loan servicer and want to switch to another. This is really only an option if you refinance or consolidate your debt, otherwise, you can’t change your loan servicer. If you have trouble with a servicer withholding important information about your loan, you can file a complaint with the Consumer Financial Protection Bureau (CFPB), or the Federal Student Aid Office of the Department of Education (for student loans). If you believe your servicer is committing fraud, you can also file a report with the Federal Trade Commission (FTC).

Notable Happenings

Claims against loan servicers have not gone unnoticed by the nation's attorneys general. In January 2022, Attorney General Josh Shapiro announced a $1.85 billion deal with Navient to resolve claims of abusive loan servicing practices. As a result of the settlement, about 66,000 borrowers will see their student loan debt canceled, and 350,000 more will receive about $260 apiece in restitution payments.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

Consumer Financial Protection Bureau. "What Happens If the Company That I Send My Mortgage Payments to Changes?" Accessed Jan. 25, 2022.
U.S. Bank. "At your service: Outsourcing Loan Agency Work." Accessed Jan. 25, 2022.
AttorneyGeneral.gov. "Attorney General Josh Shapiro Announces $1.85 Billion Landmark Settlement With Student Loan Servicer Navient." Accessed Jan. 25, 2022.