I’m just going to come out and say it. FedLoan Servicing is literally the worst federal student loan servicer.
In many ways, all of the major student loan servicing companies have their problems, and it’s no wonder that the student loan servicing system as a whole has been repeatedly characterized as a dismal failure. But there is no servicer that is as consistently and embarrassingly awful as FedLoan Servicing.
The U.S. Dept. of Education’s major contracted loan servicing companies are the face of the federal student loan system. Servicers are the entities that borrowers must interact with on a regular basis. The servicing companies must be able to perform many critical operations for student loan borrowers – like processing payments, handling consolidation applications, approving people for repayment plans and properly calculating their monthly payments, and reviewing requests for emergency deferments and forbearances. Loan servicers are required to perform these operations under their contracts with the U.S. Dept. of Education. And borrowers have no choice but to work with their designated servicer – they do not have the ability to switch to a different student loan servicing company if they are unhappy.
Having worked with hundreds of student loan borrowers over the course of the past several years, I can say without any hesitation, without any reservation, that FedLoan Servicing (which is an arm of the Pennsylvania Higher Education Assistance Association, or PHEAA) is by far the worst of all of them. Based on a review of my docket just for the year 2016 thus far, a full 64% of my clients who have loans with FedLoan Servicing have experienced at least one serious problem during the past six months that was entirely caused by FedLoan Servicing. That’s nearly two out of three borrowers.
This is unacceptable.
FedLoan Servicing’s failures are as broad in type as they are deep in volume, and they span nearly every fundamental task that the agency is supposed to be performing. Here are some specific examples of FedLoan Servicing’s incompetence that I repeatedly encounter in my practice:
Many student loan borrowers have been waiting for months to have their request for income-driven repayment processed and approved. Some people have waited six months or more for decisions on these programs. While they wait, borrowers are faced with a choice to either make impossible payments under a balance-based plan, or use up their forbearance while interest accrues. And of course, borrowers cannot make progress towards loan forgiveness. The Washington Post wrote a detailed article on FedLoan Servicing’s delays. The U.S. Dept. of Education said that FedLoan Servicing would be improving. It has not.
Improper denials of eligibility for income-driven repayment
Given the extreme delays outlined above, one might think that FedLoan Servicing simply does not have a department to process requests for income-driven repayment. Don’t fret – they do; the department just displays a truly remarkable level of incompetence. In addition to the processing delays, FedLoan Servicing frequently churns out blatantly incorrect determinations of eligibility for income-driven repayment plans. I have had a shockingly high number of clients who have been told – wrongfully – that they are not eligible for the plan they applied for, or for any income-driven repayment plan at all. When FedLoan Servicing is confronted with a clear error, they often agree to re-process the borrower’s application. But the borrower then goes to the back of the processing queue and has to again deal with FedLoan Servicing’s maddening delays. Will they get it right the second time? Ask me in another six months.
Rampant consolidation errors
Borrowers choosing to consolidate with FedLoan Servicing often encounter a wide array of consolidation-related errors. I’ve seen FedLoan Servicing leave loans out of a consolidation, even though all loans were properly included on the borrower’s consolidation application. FedLoan Servicing has placed consolidating borrowers on the wrong repayment plan, or provided a projected consolidation loan balance that was way off. I’ve seen FedLoan Servicing process a consolidation application when they legally were not supposed to do so, and I’ve also seen them improperly cancel a consolidation application without the borrower’s approval or knowledge. Their consolidation department is nothing short of a disaster.
Improper determinations of Public Service Loan Forgiveness eligibility
As the loan servicer designated by the U.S. Dept. of Education to handle borrowers on track for Public Service Loan Forgiveness, FedLoan Servicing must interact with millions of federal student loan borrowers who are trying to track their progress. Unfortunately for them, as the American Bar Association recently reported, FedLoan Servicing has been issuing borrowers inconsistent or blatantly incorrect determinations about employer eligibility for the program. Next year, the first borrowers will be applying for Public Service Loan Forgiveness, and they are going to have to go through FedLoan Servicing. Any guesses on how that will go?
Income-driven repayment re-certification errors
To remain in an income-driven repayment plan, borrowers must renew the plan each year by recertifying their income. Changes to income will result in changes to the borrower’s monthly payment. If borrowers do not re-certify their income by the applicable deadline, they could be removed from income-driven repayment, which could have significant consequences in the form of higher monthly payments and interest capitalization. FedLoan Servicing has a nasty habit of kicking people off income-driven repayment plans even when borrowers comply with their obligation to re-certify their income by the deadline. Since three months (the typical re-certification window) is often not enough time for FedLoan Servicing to process income-driven repayment plan requests, perhaps this should be unsurprising; but student loan borrowers shouldn’t have to pay the price for FedLoan Servicing’s failures.
Payment calculation errors
With the rollout of the new Revised Pay As You Earn (REPAYE) plan, FedLoan Servicing’s errors in calculating a borrower’s monthly payment under income-driven plans have increased substantially. In particular, FedLoan Servicing has been improperly factoring in spousal income for borrowers re-certifying for the ICR/IBR/PAYE plans, even where those borrowers file taxes separately from their spouse and under federal law, spousal income should be excluded. When FedLoan Servicing makes a mistake in calculating a borrower’s monthly payment, the borrower often pays the price – either in the form of making those higher payments, or by requesting a costly forbearance, while FedLoan Servicing takes its time to review the file.
I have a running joke with some of my clients: if you talk to a FedLoan Servicing customer service agent and they provide you with information that seems incorrect, politely end the call, and call back later to speak with someone else – they will almost certainly get a different answer. The problem is that this is not really funny at all. Student loan borrowers rely on loan servicers to provide them with complete, accurate, and up-to-date information about their loans. When servicers instead provide misinformation or inconsistent answers, borrowers are lost, and it can cost them. FedLoan Servicing’s customer service staff can also come off as disinterested, unmotivated, or downright rude. I don’t know who benefits from FedLoan Servicing’s poor customer service training, but I sure know who loses.
Confusing and erroneous documentation
It has become so routine for FedLoan Servicing to provide confusing or misleading correspondence to student loan borrowers that I have made it a part of my practice to warn my clients to just expect it. For example, when borrowers consolidate their loans through FedLoan Servicing, they almost inevitably receive a letter warning them that critical documentation or information was not received. The problem is that the agency sends out this letter to nearly everyone, regardless of whether it’s true or not. As a result, I simply instruct my clients to ignore this and call FedLoan Servicing to ascertain the status of their application (side-note: I also instruct my clients to ignore FedLoan Servicing’s automated loan status phone system, which also is often incomplete or inaccurate).
This isn’t even an exhaustive list of FedLoan Servicing’s problems. It’s a sampling. A taste. A concise summary.
I don’t think anyone expects such a large financial system with so many inherently confusing programs to be perfect; but I don’t think it’s unreasonable to expect at least a basic level of functionality. FedLoan Servicing is a failure – period.
The question, of course, is what can we do about this? At present, given the political paralysis in Washington, I don’t know that we’re going to see any significant movement on student loan reform in the immediate future. I think right now, what we need to be doing is calling attention to this problem – sharing our stories, notifying authorities, and insisting on reform. Here are some suggestions:
- File a complaint with the Consumer Financial Protection Bureau (CFPB), which is the agency tasked with monitoring student loan servicing. They want to hear from you – so tell them about your experience.
- File a complaint with your state Attorney General’s office. While the federal government has been paralyzed as of late, state Attorneys General have been increasingly active in standing up for student loan borrowers – especially in Massachusetts and New York, where I practice. Tell them about what’s going on.
- Reach out to reporters. National and local news organizations have taken an interest in the plight of student loan borrowers, and servicing is a major topic. Often a good news story can spread the word about a systematic problem in a powerful way.
- Call your Congressperson or Senator. Yes, Washington is paralyzed. But there’s an election coming up. Elections have consequences. And if your representative has been hearing for months and months about all the problems associated with student loan servicing, they’ll be in a better position to understand the problem when that paralysis and gridlock ends.
- And finally, share this blog post. People need to know that the problem is not them – it’s the system.