If you haven’t heard by now, the Dept. of Education recently contracted with a new federal loan servicer and, well, things haven’t been going very smoothly. There have been a host of problems, particularly for borrowers who are onIncome Based Repayment (IBR).

Well, the servicer is now also causing problems for borrowers who are consolidating their federal student loans. Consolidation is a useful tool for borrowers who are seeking to optimize repayment. It can also help bring you out of federal default under certain circumstances, and can make you eligible for Public Service Loan Forgiveness (if you meet the other eligibility criteria as well).

When you consolidate, you must select a repayment plan. Many borrowers will choose IBR because it often results in the lowest monthly payment and the possibility of loan forgiveness. However, for newly consolidated loans, the new federal loan servicer has been placing borrowers on the Standard repayment plan (sometimes with very high payments), regardless of the repayment plan that the borrower actually selects.

I called the new federal loan servicer this week to get an explanation. You’ll love this. Apparently, they are placing borrowers on the Standard plan because they (now) require that repayment plan selection forms and proof of income be sent directly to the federal loan servicer’s address in Texas. However, when you consolidate, you are required to send all those forms to the Consolidation Department’s address, which is in Kentucky. I told the federal loan servicer representatives that in fact this new requirement and change of address has not been communicated to anyone, since the Consolidation Department still instructs consolidating borrowers to send all forms, including repayment plan selection forms, to its Kentucky address. The servicer representatives told me I was flat wrong. Funny, since I just did several consolidation applications for clients over the past few days… I’m not wrong.

So, folks who are consolidating, please be aware of this new requirement. I figure since no one else is actually disseminating this information, I’ll go ahead and spread the word. Repayment plan selection forms for consolidating borrowers need to be sent to your federal loan servicer address, as well as the Consolidation department address, since apparently having two departments within the U.S. Dept. of Education actually communicate with each other is just way, way too much to ask.