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Lawsuits filed against one of the nation’s largest student loan servicers by the federal government’s consumer watchdog and two states highlight the importance of knowing your options for repaying student loan debt.

The Consumer Financial Protection Bureau says borrowers who were struggling to make their monthly payments needlessly paid billions in interest charges because Navient customer service representatives encouraged them to postpone payments through forbearance when they could have enrolled in income-driven repayment plans that would have provided less costly relief.

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It remains to be seen whether the Consumer Financial Protection Bureau’s allegations against Navient will hold up in court. Navient officials call the lawsuits politically motivated and say they plan to fight them. Half of the loan balances Navient collects payments on for the federal government are enrolled in income-driven repayment plans, and the company says claims “that we do not educate borrowers about IDR plans ignore the facts.”

But government regulators, lawmakers and consumer advocates have voiced a host of concerns about the practices of companies that collect payments on student loans on behalf of the federal government and private lenders.

While loan servicers that collect payments on more than $1 trillion in student loan debt seem to be getting their collective act together, government regulators continue to keep a sharp eye out for “unfair, deceptive, or abusive acts or practices.”

If you think you’re being subjected to any of the practices below, contact your loan servicer (see list below). If you’re unable to get help from your servicer, you can also file a complaint with the office of Federal Student Aid or the CFPB.

List of federal student loan servicers

Loan servicerToll-free phone numberFaxAddressWebsite
800-663-1662801-366-8400P.O. Box 145122
Salt Lake City, UT
FedLoan Servicing
800-699-2908717-720-1628P.O. Box 69184
Harrisburg, PA
Granite State
Granite State Management & Resources
888-556-0022603-227-54154 Barrell Court Concord, NH
Great Lakes
Great Lakes
800-236-4300800-375-5288PO Box 7860
Madison, WI
855-337-6884800-887-6130P.O. Box 36008
Knoxville, TN
888-866-4352866-222-7060633 Spirit Drive
Chesterfield, MO
800-722-1300866-266-0178P.O. Box 9635
Wilkes-Barre, PA
888-486-4722877-402-5816P.O. Box 82561
Lincoln, NE
866-264-9762855-813-2224525 Central Park Drive, Suite 600 Oklahoma City, OK
Phone, fax, address and links to websites of all nine loan servicers authorized to collect payments on FFEL and federal direct student loans. Information is for federal student loan borrowers. Some servicers may have separate contact information for private student loan borrowers. Many servicers recommend online submissions for fastest processing of forms and payments. Check servicer’s website for details.

Here’s our roundup of nine things that your student loan servicer isn’t supposed to do to you.

1. Steer you into forbearance

As the CFPB noted in its lawsuit against Navient, borrowers who are having trouble making monthly payments on federal student loans have the option of enrolling in an income-driven repayment plan that caps monthly payments at a percentage of monthly disposable income. If you have no disposable income, you don’t need to pay anything on your student loans.

When you put your loans into forbearance, they’ll still rack up interest that you’ll eventually have to repay. But if you enroll in a federal income-driven repayment plan, some or all of that interest may be waived — particularly if you have need-based subsidized loans.

If your monthly payment doesn’t cover all the interest you owe each month, the REPAYE, PAYE, and IBR plans take care of any unpaid interest that accrues on subsidized loans for up to three years from the date you enroll (for more on REPAYE and other IDR plans, see our guide). The REPAYE plan keeps taking care of half of the unpaid interest on subsidized loans after this three-year period, and will pay half of the difference on your unsubsidized loans during all periods (for more on the difference between subsidized and unsubsidized loans, see “Subsidized vs. unsubsidized student loans: What is the difference?“).

IDR plans aren’t an option for private student loans, so forbearance can be a useful remedy for borrowers experiencing unexpected hardships like the loss of a job. But the CFPB alleges that from January 2010 to March 2015, Navient “added up to $4 billion in interest charges to the principal balances of borrowers who were enrolled in multiple, consecutive forbearances.” The CFPB believes “that a large portion of these charges could have been avoided had Navient followed the law.”

Be aware that while income-driven repayment plans can be great for borrowers who are struggling to make payments, they can also have pitfalls. Stretching out your loan payments over a longer period of time can increase your total repayment costs, particularly if you don’t end up qualifying for loan forgiveness. You may also get kicked out of an IDR plan if you fail to recertify your income — more on that in the next section.

Although IDR plans aren’t for everyone, you should at least investigate them before letting your servicer convince you that you should put your federal loans in forbearance. The Department of Education’s repayment estimator is a good tool for getting a handle on what your payments might be in any government repayment plan, and whether you’ll qualify for loan forgiveness. But be aware of its shortcomings.

2. Put your IDR plan on cruise control

One of the most valuable benefits of IDR plans for borrowers trying to pay down big student loan debts on modest incomes is the potential to qualify for loan forgiveness. Depending on the plan, if you make payments for 20 or 25 years and still owe money, your remaining loan balance may be forgiven (note that the amount forgiven will be considered taxable income). If you work for the government or a qualifying non-profit, you may qualify for tax-free Public Service Loan Forgiveness after just 10 years of payments.

Because your monthly payments are based on a percentage of your disposable income, which hinges on your family size, you must “recertify” your income and family size once a year — even if your situation hasn’t changed. Recertification is something of a pain — the 10-page form is the same one you use when first applying to enroll in an IDR plan, and you may need to document your income or log into a website in order to transfer data from the IRS.

Here is where many people get into trouble. Your loan servicer is supposed to send you a reminder when it’s time to recertify. If they don’t, or if recertification slips your mind, you could see your monthly payments increased or even be kicked out of your IDR program. That can not only throw off your timeline for qualifying for loan forgiveness, but your monthly payments may double or triple, and unpaid interest that’s accumulated while you’ve been enrolled can get “recapitalized,” or tacked onto your total loan balance.

According to a report by the Center for American Progress, “This seemingly minor paperwork issue trips up nearly 60 percent of student-loan borrowers [enrolled in IDR plans] and results in potentially dire consequences. Reapplication is a hidden trap in IDR plans—a complication that threatens the effectiveness of America’s best solution for helping struggling student-loan borrowers.”

In its lawsuit against Navient, the CFPB alleged that “emails and annual renewal notice sent to borrowers [enrolled in IDR plans] failed to adequately inform them of critical deadlines or the consequences if they failed to act. Navient also obscured its renewal notices in emails sent to borrowers that did not adequately alert them about the need to renew.”

3. Thwart early student loan pay downs

Making more than the minimum monthly payment on your student loans can enable you to pay them off early, saving thousands in interest in the process.

But loan servicers may not credit your student loan “prepayments” against your loan principal. The CFBP has found that some loan servicers may thwart early pay downs by extending your loan term or granting you a “payment holiday.”

If you’re making auto payments, tell your servicer exactly what you want them to do with any extra money you pay each month. You may want them to allocate payments to loans with the highest interest rate, for example.

4. String out your cosigner

Borrowers who take out private student loans to bridge college funding gaps typically need a cosigner. A cosigner can help you qualify for a private student loan, and get a better interest rate. But once you’ve graduated and landed a job, you’ll start building credit that may allow you to release your cosigner from their obligation. Lenders will typically allow borrowers to apply for cosigner release after they’ve made 12 to 48 consecutive monthly payments.

But in its lawsuit against Navient, the CFPB alleged that borrowers who made prepayments on their loans were told they could skip upcoming payments. Those who did saw the counter for releasing their cosigner reset. “So borrowers who tried to get ahead of their loans and prepay would have been denied co-signer release and had to start over,” regulators said.

5. Allocate partial payments in ways that hurt you

If you have multiple student loans, you’re probably paying them down through a combined account with one loan servicer. Your servicer will send you a bill that sums the minimum monthly payment for each of your loans. If you pay less then the total minimum you owe and don’t tell your servicer how to allocate your partial payment, they may just divide it equally between your loans. When that happens, every single one of your loans will then be delinquent, and you may get hit with a late fee on each one.

A better strategy for allocating a partial payment might be to cover all of what’s owed on the loans with the highest interest rates first, keeping them current. That way, you’ll only get hit with late fees on the loan or loans you are unable to pay, and those loans will have the lowest interest rates. In a 2015 report, the CFPB said one loan servicer adopted this strategy as its default when it has no instructions from the borrower on how to distribute partial payments.

The CFPB says your loan servicer should be letting you know how they direct partial payments, and the potential ramifications of the servicer’s chosen method. Your loan servicer should also let you know that you have the right to direct payments to individual loans yourself as you see fit.

6. Keep you in the dark when you thought you paid that loan off

Here’s a nightmare situation that you can chalk up to a failure to communicate. Say you want to pay off the remainder of your student loan debt with a big lump sum payment. But what if you’re not completely up to date on what your outstanding balance is, and your lump sum payment is a few dollars short of what you actually owe?

“Many student loan servicers do not inform borrowers that the payoff attempt failed and cease communicating regularly with the borrower for a significant period of time because the borrower has paid enough to cover subsequent months and does not have a monthly payment due, even though a small balance remains on the loan or account,” the CFPB reports. “When this type of situation occurs, borrowers may be left unaware that a balance remains, resulting in months or years of interest accrual, tradelines remaining open in borrowers’ credit reports, and potential delinquency or default when monthly payments are again due months or years later.”

It’s a good idea when you pay off any loan to get written confirmation from the lender. If you’re refinancing your student loans to take advantage of lower rates, you’ll need to obtain a payoff statement, a document showing your latest student loan balance that your current lender provides to the lender that’s refinancing your loan. For more, here are instructions on how to obtain a payoff statement from your lender.

7. Abuse the trust you place in them to accept automatic payment

Most loan servicers allow you to make automatic payments on the same day every month. If your servicer makes a mistake and takes money out of your bank account earlier than the scheduled date, you may get hit with overdraft or non-sufficient funds fees.

Another more subtle problem is if your payment is scheduled to be made on a day when the bank is closed — on a weekend or holiday — it often won’t be processed until the next business day. When that happens, some loan servicers are charging borrowers the extra interest that accrues for a day or two after you thought your payment would be made.

The amount of extra interest charged is so small you might not even notice, but the CFPB says that when you add up the impact across all borrowers using automatic payment, it constitutes “a substantial injury” that’s not outweighed by the convenience provided by the service. The CFPB says loan servicers should credit payments back to the due date, or make clear to borrowers using automatic payment that they extra interest can accrue.

8. Tell you you can’t discharge student loans in bankruptcy

Although it’s not easy to get out from under student loan debt in bankruptcy court, it can be done if you can demonstrate “undue hardship” (see previous article).

CFPB examiners had previously reported that some loan servicers were erroneously telling borrowers that student loan debt is not dischargeable in bankruptcy. The latest report details a new twist: At least one servicer has been advising borrowers who have already gone through bankruptcy that their student loan debt is not dischargeable. In fact, the CFPB says, borrowers “often have avenues to reopen bankruptcy cases or otherwise raise ‘undue hardship’ challenges to the enforceability of student loans.”

9. Threaten you with late fees

At least one loan servicer is telling borrowers that they may have to pay late fees on loans held by the Department of Education. Department of Education loan notes allow for the charging of late fees, but the government “does not, at this time, charge late fees on its loans and it instructs its servicers not to do so,” the CPFB said.

About the author
Matt Carter
Matt Carter

Matt Carter is a Credible expert on student loans. Analysis pieces he’s contributed to have been featured by CNBC, CNN Money, USA Today, The New York Times, The Wall Street Journal and The Washington Post.

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