Student Loans and Servicing Nightmares

Aug 31, 2018

You’re not alone if you’ve had problems with the companies that service your student loans. While it’s probably no consolation, consider the nightmare one borrower had to endure when her student loan servicer made a series of inexplicable and inexcusable mistakes. Those mistakes and the problems they caused are described in excruciating detail  in a recent Mother Jones article.

The story centers on Leigh McIlvaine, who borrowed almost $70,000 to get her master’s degree in urban and regional planning. After graduating, she found a job at a non-profit in Washington, DC. But with monthly loan payments of about $850, McIlvaine had barely enough of her $46,000 salary left over to pay rent and living expenses. Still, she was happy to have a job doing what she wanted to do. That was the reason she invested in her education.

After making payments for a few years, things began to look up for McIlvaine when she learned about the Public Service Loan Forgiveness Program (PSLF). The program was signed into law in 2007 with bipartisan support. The purpose of the PSLF is to give relief to borrowers with federal student loans who work in public service jobs where salaries are traditionally lower than in the private sector. Qualifying borrowers with public service jobs can get the remaining balance of their student loans forgiven  after they make on-time payments for 10 years (120 months). They can also get their monthly loan payments lowered to an amount based on their income and family size  (called an income-based repayment program).

McIlvaine was eligible for the PSLF because she worked for a non-profit company. So she enrolled, paid her loans on time, and sent the required tax forms in each year to confirm her eligibility. Things went smoothly for a few years. But in 2012, the Dept. of Education (DOE) hired FedLoan Servicing  to service the student loans for those borrowers who were participating in the PSLF (FedLoan is the d/b/a for the Pennsylvania Higher Education Assistance Agency). That’s when McIlvaine’s nightmares began.

Here are some of the mistakes made by FedLoan, as described by Mother Jones:

  • FedLoan put McIlvaine’s loans into forbearance shortly after the loan servicing rights were transferred. Forbearance is a remedy for borrowers who are having a hard time making payments. But McIlvaine didn’t need forbearance because she was making her payments on time. While her loans were in forbearance, the payments she made didn’t count towards the 10 year repayment requirement.
  • FedLoan initially failed to put some of McIlvaine’s loans into an income-based repayment plan, even though she was eligible. This caused the amount of her monthly payments to dramatically increase for a period of time.
  • McIlvaine sent her annual tax information to FedLoan as she was required to do. But the company took months to process the paperwork and put her loans on “administrative forbearance” while it was doing so. As a result, none of the payments she made during this time count towards the 10 year repayment requirement.
  • In 2016, McIlvaine enrolled in a new program put in place by the Obama administration that lowered her monthly payments. But FedLoan put her loans in forbearance again even though she was making timely payments. She didn’t receive credit for the payments made during this period.
  • A few months later, FedLoan inexplicably sent McIlvaine a bill that exceeded her monthly payment amount by $1,600. She immediatelt contacted FedLoan and was told the bill was the result of “glitch” and that she should ignore it. McIlvaine got a job offer a few months later. When her new employer ran a credit check, she learned that FedLoan had been reporting her loans as delinquent, which lowered her credit score. She fortunately got the new job, but only after she filed a complaint against FedLoan with the Consumer Financial Protection Bureau.

FedLoan’s mistakes had real world consequences for McIlvaine. Her student loans should be eligible for forgiveness in 2020. But because she didn’t receive credit for payments  when FedLoan wrongfully put her loans in forbearance, she’ll have to make payments for at least an additional year.

The Massachusetts Attorney General filed a complaint against Fed Loan in August 2017. You can read the complaint here.

These types of problems are common with companies that service student loans. Servicing is a high volume, low profit business. Loan servicing companies often cut corners by automating processes. The result is poor customer service.

If you are having problems with the company servicing your student loans, you may have legal remedies. Please contact me. I can review your situation and let you what options are available.

 

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