The new loan servicer for federal Direct loans contracted with the Department of Education is a complete and utter disaster (yeah… I said it). They have been causing major problems for borrowers on Income-Based Repayment, and they have also been messing up Direct Loan Consolidations. They cannot seem to do anything right, and I’m really not exaggerating here.

Well, they are causing yet another new problem, and this one is particularly important for borrowers who are still in school. Apparently, the new servicer is reporting that some federal loans enter repayment this March or April, even when the borrower does not graduate until May or June and has an in-school deferment until that point. When contacted, the customer service representatives are informing borrowers not to worry, it is just an error. But I’ve also been getting stories from other borrowers that these loans may actually enter repayment prior to graduation. For borrowers who have already set up automatic debit from their bank accounts (this is particularly true for borrowers who had been in repayment before returning to school full-time), the Dept. of Education might actually withdraw payments automatically from your bank account.

This is a complete nightmare. Borrowers who are presently in school and technically in deferment might want to consider canceling automatic debit if it is already set up, at least until you graduate. In-school borrowers should also check myedaccount.com and www.nslds.ed.gov to determine the status of all federal loans. Watch your mail for any bills that come in. If you’re billed while in deferment, you’ll want to call the loan servicer and figure out what to do (and their wait times can be obscenely long, because hey, why have effective customer service when you can’t do anything else right anyway?).