Student loan servicers, the companies that manage $1.4 trillion in federal and private loans, haven’t been earning much trust among borrowers.
Sixty-four percent of the 44,400 student loan complaints the Consumer Financial Protection Bureau collected between July 2011 and March 2017 involved problems borrowers had with their lenders or servicers, including not informing them about repayment options. That was almost double the number of complaints borrowers made about unaffordable loan payments.
You can often switch your private loan servicer by refinancing with another lender. But switching federal loan servicers is more complicated: You can only do so by consolidating multiple loans into a federal direct consolidation loan, and there are drawbacks to this process. If you don’t know your servicer, find out at the Federal Student Aid website. There are nine federal servicers, but the Department of Education is moving toward using only one.
Because your servicer might not share all the details, it’s important to know your repayment and forgiveness options. Here are three things to keep in mind.
1. You can lower your payments
The default 10-year plan is the best way to repay federal loans without incurring additional interest. If you’re falling behind on your bill, avoid temporarily halting payments with deferment or forbearance. Neither option will address your debt, and your loans can still incur interest, which means a bigger balance once the postponement period ends.
Instead, consider these federal repayment plans:
- Graduated repayment: This plan starts off with lower payments than the standard plan, but they increase every two years. It’s a good option if you expect your income to increase over time.
- Extended repayment: If you qualify, you can pay graduated or fixed amounts with an extended repayment period of up to 25 years.
- Income-driven repayment: There are four income-driven plans: Income-Based Repayment, Income-Contingent Repayment, Pay As You Earn and Revised Pay As You Earn. Each plan caps your monthly payment at between 10 percent and 20 percent of your discretionary income and increases your loan term from 10 years to 20 or 25 years. Apply and select your plan on studentloans.gov, or your servicer will choose the one you qualify for that has the lowest monthly payment.
Keep in mind that the more you extend your repayment term, the more interest you’ll pay.
2. Remember to recertify your income
Qualifying for income-driven repayment isn’t a one-and-done process. You must recertify your income and family size each year with your servicer. If your income has increased, your loan payment will, too. But if your income drops or your family size changes before your annual recertification, submit an updated application and ask for an immediate payment recalculation. Otherwise, you could pay more than required.
3. Forgiveness might not be the solution
There are four federal student loan forgiveness programs: Public Service Loan Forgiveness, Teacher Loan Forgiveness, Perkins loan cancellation and income-driven repayment forgiveness. Your repayment plan could disqualify you from some programs, even if you meet other qualifications.
For example, Public Service Loan Forgiveness cancels the remaining balance on direct loans — the most common type of student loan — after 120 qualifying monthly payments made while working full time for an eligible employer, such as a government organization. You must be enrolled in a standard repayment plan or an income-driven repayment plan, though — and payments made on a graduated or extended plan won’t count toward the 120.
What to do if you’re unhappy with your servicer
Even if you know your payment options, you might run into trouble with your servicer. Unfortunately, you’ll have minimal legal recourse.
“Even if there are egregious efforts, the ability to sue is very challenging,” says Persis Yu, staff attorney at the National Consumer Law Center. “The Higher Education Act does not have a private ‘right of action,’ so a servicer could do something in flagrant violation of that act and there’s no right to take that to court.”
Still, if you’re unhappy with your servicer, you can submit a complaint to the CFPB, which will track it and forward it to the company for a response. In some cases, the CFPB will take its own action: Earlier this year, it took part in a suit against Navient, the nation’s largest servicer, alleging that it misallocated borrowers’ payments and misguided them about repayment options. Navient denied the allegations and is seeking to dismiss the lawsuits.
You can also submit a complaint to the Department of Education. In addition, California, Connecticut and Washington, D.C., have enacted student loan bill of rights laws to collect complaints from borrowers and help them understand their rights.