FedLoan Servicing manages about one-third of all outstanding federal student loan debt. So, you’d think this high level of responsibility would mean FedLoan is at the top of its loan servicing game. But FedLoan consistently ranks at the bottom when it comes to student loan borrowers’ experience.
Respondents from Student Loan Planner®’s recent student loan servicers survey gave FedLoan an average rating of 2.8 out of 5 stars. The top FedLoan complaints ranged from poor customer service to issues with making payments, including mismanaging the Public Service Loan Forgiveness program.
If you’re stuck with FedLoan as your loan servicer, we feel your pain.
Poor customer service can translate to inaccurate guidance about repayment plans, forgiveness programs and general student loan information. Such errors can be devastating because forgiveness programs can lower your monthly payment, potentially saving you thousands in interest.
Here’s what you need to know about FedLoan forgiveness programs.
Federal forgiveness programs for FedLoan student loans
FedLoan Servicing offers three forgiveness options that are specific to federal student loans:
1. Public Service Loan Forgiveness (PSLF)
Borrowers who work in the public sector may qualify for PSLF. The PSLF program allows for tax-free loan forgiveness after 10 years of eligible public service. Specifically, it requires 120 qualifying payments under an income-driven repayment plan while working for a PSLF-qualifying employer.
If you meet the criteria for PSLF, you’ll ultimately be stuck with FedLoan because the government gave FedLoan a monopoly for managing borrowers pursuing PSLF.
But be aware FedLoan is known for fumbling paperwork. Our loan servicer survey revealed numerous complaints about FedLoan’s handling of the PSLF program. For example, how it calculates qualifying student loan payments.
So, it’s important to keep your own records, and confirm your FedLoan payments and PSLF progress are being processed correctly.
We suggest submitting your PSLF employment certification form at least once, if not twice, a year. This will create an extensive paperwork trail for your PSLF forms and help minimize unexpected issues at the end of your repayment period.
2. Income-driven repayment forgiveness
The Department of Education provides a variety of federal student loan repayment options, including four income-driven repayment (IDR) plans. These IDR plans can provide a lower monthly student loan payment and eventual loan forgiveness.
IDR plans include:
- Pay As You Earn (PAYE). Payments are 10% of your discretionary income over a 20-year repayment period.
- Revised Pay As You Earn (REPAYE). Payments are 10% of your discretionary income for 20 or 25 years, depending on whether you have undergraduate or graduate loans.
- Income-Based Repayment (IBR). Payments are 10% to 15% of your discretionary income over 20 or 25 years, depending on when you received your first eligible loans.
- Income-Contingent Repayment (ICR). Payments are 20% of your discretionary income or based on a fixed payment over 12 years, whichever is less. The repayment period for ICR is 25 years.
Each of these plans requires an annual recertification of your income and family size. This information is used to calculate your monthly loan payments each year.
3. Teacher Loan Forgiveness Program
If you’re a teacher, you may be eligible to receive up to $5,000 or $17,500 in FedLoan student loan forgiveness.
The Teacher Loan Forgiveness Program awards teachers with loan forgiveness after five consecutive years of teaching in a low-income school or educational service agency.
But the full forgiveness amount is limited to “highly qualified” math and science teachers at the secondary school level and special education teachers. Because of these strict eligibility requirements, many teachers may be better off pursuing PSLF instead.
Other student loan forgiveness programs
FedLoan doesn’t provide any special programs that would provide additional financial relief. But you may be able to take advantage of forgiveness programs outside of FedLoan.
Be sure to look into:
- State-sponsored programs. Many states have loan repayment programs geared toward specific professions or academic studies. For example, Texas and New York each have as many as nine state-sponsored student loan forgiveness programs.
- Programs based on profession. Healthcare professionals, lawyers, veterinarians and teachers have some of the most robust student loan forgiveness programs. Most of these programs are designed to fill a need for professionals in critical shortage areas.
For detailed information, check out our Ultimate Guide to Student Loan Forgiveness.
Should you switch loan servicers by refinancing your student loans?
If you’re fed up with FedLoan, you can swap loan servicers by consolidating your student loans. Federal Direct Loan Consolidation bases your new interest rate on the average interest rate of your original loans. However, keep in mind that this option isn’t available for private student loans.
You also have the option of refinancing your Fedloan student loans to a private loan. Doing so could lower your interest rate and let you switch to a borrower-friendly lender. But you’ll also lose federal protections and benefits, like access to forgiveness programs, IDR plans and loan forbearance.
A lower interest rate and better customer service isn’t worth switching loan servicers if you’re pursuing any type of federal student loan forgiveness.
For example, let’s say you’ve made three years’ worth of payments toward Teacher Loan Forgiveness. Because you only need two more years of qualifying payments, refinancing wouldn’t be in your best interest. You’d be forgoing up to $17,500 of forgiveness in exchange for a lower rate and maybe less of a headache when dealing with your loan servicer.
The same applies if you’re pursuing PSLF on a qualifying repayment plan or are well on your way to forgiveness through an IDR plan. You’ll need to weigh the benefits of refinancing versus the cost of losing opportunities for loan forgiveness.
Keep in mind that none of the major loan servicers are exceptional at their jobs. So, the choice to switch loan servicers for a smart borrower needs to be primarily based on how much it will save you and your long-term financial goals .
If you need help creating a strategic plan for those goals, Student Loan Planner® consultants can help sort through your student loans in a convenient way and provide you with a custom plan.