Start with the fact that the student-loan repayment industry is a big business.
The industry includes nine large companies and agencies, known as servicers, that collect loan payments for the federal government. In return, the government pays nearly $1 billion a year for their services.
These firms, including Navient and Nelnet, deal directly with roughly 43 million borrowers who owe about $1.4 trillion in federal student loans. Customer service agents field borrowers’ questions, lay out repayment plans and collect loan payments. Loan servicers also track loans while borrowers are still in school, and process changes in repayment plans, deferments, forbearances or other activities to prevent default.
Yet, a new report reminds us once again that the student-loan service industry has significant service problems. Even more troubling, the problems span not only the industry but the Department of Education unit responsible for managing the work, according to the report released in mid-February by the department’s inspector general.
In the report, the department’s watchdog concluded that many borrowers have received bad or inadequate advice, possibly leading to a rise in defaults. Moreover, the report singled out the Federal Student Aid office, which manages the student-loan program, for taking inadequate steps to fix well-documented customer-service problems.
For example, the review found instances where customer service agents failed to tell distressed borrowers of options to lower monthly payments, such as recalibrating bills to better align with their pay. In other situations, the report said, agents miscalculated the monthly amount owed, resulting in payments that were too big or too small.
The inspector general examined the Federal Student Aid office’s dealings with the nine loan servicers from early 2015 through September 2017. While the review found problems at all the servicers, some were worse than others.
For the full report, go to the Department of Education’s website (www.ed.gov) and click on “Inspector General” at the bottom of the home page.
In response, the Department of Education said it “fundamentally disagrees” with the inspector general’s conclusions, but the department also said it is revamping the processes and procedures for how loan servicers deal with borrowers to improve customer service.
While borrowers can’t select the servicing company they want to deal with unless they’re consolidating their loans, they can take steps to protect themselves. It starts with knowing which company has your account, (or accounts, in some cases) and learning what the provider can and cannot do to help.
How do you know if there are problems with your loan servicer? Here are some red flags, from the federal Consumer Financial Protection Bureau, that could tip you off:
—The loan servicer loses paperwork you’ve filed to reduce payments.
—The loan servicer misapplies or misallocates payments.
—The loan servicer steers you toward paying more than you’re supposed to when you’re having trouble making payments.
—The loan servicer withholds relevant information about less-costly repayment options, especially for income-based repayment programs that can adjust your payments to as little as 10 percent of your income.
Finally, if borrowers feel they’ve received bad or inadequate advice from customer-service agents, file a complaint with the Consumer Financial Protection Bureau. You can also file a complaint directly with the servicer and the Department of Education’s Federal Student Aid feedback system.
Because bad experiences with loan servicing agents can lead to damaged credit, bankruptcy and other life-changing experiences, you owe it to yourself to learn as much as you can about the repayment system and to protect yourself and your money.