Student loan capitalized interest Cambridge

September 18, 2015
Loans, with interest

FrustratedI’m just going to come out and say it. FedLoan Servicing is literally the worst federal student loan servicer.

In many ways, all of the major student loan servicing companies have their problems, and it’s no wonder that the student loan servicing system as a whole has been repeatedly characterized as a dismal failure. But there is no servicer that is as consistently and embarrassingly awful as FedLoan Servicing.

The U.S. Dept. of Education’s major contracted loan servicing companies are the face of the federal student loan system. Servicers are the entities that borrowers must interact with on a regular basis. The servicing companies must be able to perform many critical operations for student loan borrowers – like processing payments, handling consolidation applications, approving people for repayment plans and properly calculating their monthly payments, and reviewing requests for emergency deferments and forbearances. Loan servicers are required to perform these operations under their contracts with the U.S. Dept. of Education. And borrowers have no choice but to work with their designated servicer – they do not have the ability to switch to a different student loan servicing company if they are unhappy.

Having worked with hundreds of student loan borrowers over the course of the past several years, I can say without any hesitation, without any reservation, that FedLoan Servicing (which is an arm of the Pennsylvania Higher Education Assistance Association, or PHEAA) is by far the worst of all of them. Based on a review of my docket just for the year 2016 thus far, a full 64% of my clients who have loans with FedLoan Servicing have experienced at least one serious problem during the past six months that was entirely caused by FedLoan Servicing. That’s nearly two out of three borrowers.

This is unacceptable.

FedLoan Servicing’s failures are as broad in type as they are deep in volume, and they span nearly every fundamental task that the agency is supposed to be performing. Here are some specific examples of FedLoan Servicing’s incompetence that I repeatedly encounter in my practice:

Unacceptable delays

Many student loan borrowers have been waiting for months to have their request for income-driven repayment processed and approved. Some people have waited six months or more for decisions on these programs. While they wait, borrowers are faced with a choice to either make impossible payments under a balance-based plan, or use up their forbearance while interest accrues. And of course, borrowers cannot make progress towards loan forgiveness. The Washington Post wrote a detailed article on FedLoan Servicing’s delays. The U.S. Dept. of Education said that FedLoan Servicing would be improving. It has not.

Improper denials of eligibility for income-driven repayment

Given the extreme delays outlined above, one might think that FedLoan Servicing simply does not have a department to process requests for income-driven repayment. Don’t fret – they do; the department just displays a truly remarkable level of incompetence. In addition to the processing delays, FedLoan Servicing frequently churns out blatantly incorrect determinations of eligibility for income-driven repayment plans. I have had a shockingly high number of clients who have been told – wrongfully – that they are not eligible for the plan they applied for, or for any income-driven repayment plan at all. When FedLoan Servicing is confronted with a clear error, they often agree to re-process the borrower’s application. But the borrower then goes to the back of the processing queue and has to again deal with FedLoan Servicing’s maddening delays. Will they get it right the second time? Ask me in another six months.

Rampant consolidation errors

Borrowers choosing to consolidate with FedLoan Servicing often encounter a wide array of consolidation-related errors. I’ve seen FedLoan Servicing leave loans out of a consolidation, even though all loans were properly included on the borrower’s consolidation application. FedLoan Servicing has placed consolidating borrowers on the wrong repayment plan, or provided a projected consolidation loan balance that was way off. I’ve seen FedLoan Servicing process a consolidation application when they legally were not supposed to do so, and I’ve also seen them improperly cancel a consolidation application without the borrower’s approval or knowledge. Their consolidation department is nothing short of a disaster.

Improper determinations of Public Service Loan Forgiveness eligibility

Share this Post