Raise your hand if you’ve been personally victimized by FedLoan Servicing. If you’ve got student loans with them, you’re not going to be too surprised to hear how FedLoan Servicing totally screwed us over.
Stuffing hundred dollar bills in the toaster basically summarizes our experience with them. I’ll start with our story of misfortune, and then I’ll give you some details on the problems my clients and friends have had with FedLoan payment and customer service.
FedLoan Servicing SHOULD NOT Be Handling Public Service Loan Forgiveness
Maybe you have an experience of your own to share. Pleeeeeease share it in the comments at the end of the article. I’d love to compare what I’ve been seeing in this business with your experiences.
Frankly, it’s freaking outrageous that the government gave them a monopoly on servicing borrowers looking for higher education assistance with the PSLF program. Hopefully, this piece and the comments will serve as exhibit A why the government should dump them.
FedLoan Enters the Picture After My Discovery of a Promising Loan Forgiveness Program in 2015
When I met my beautiful girlfriend (now fiancee) Christine, and we started getting more serious, we had the money talk. She let me know that she had six figures of med school debt. Maybe you were the one who delivered the “I have a lot of debt” line instead of being on the listening end like I was. My reaction was basically just, “ok let’s figure out how to save money paying this back.” I viewed it as my debt too, since I was looking to spend the rest of my life with her.
Maybe when you graduated school or found out your partner had student loans, your first thought was the same as mine was. We’d just pay it down super fast and get out of debt, but then I found out about the PSLF program. In that moment, all my Dave Ramsey / Suze Orman conventional wisdom just went straight out the window.
We Thought We’d Found the Solution to Our Six Figure Debt
Christine could finish her training, work for a few more years at a not for profit hospital, and get whatever she had left over wiped away tax-free. SOOOO COOL!!!!! I learned that we had to submit this PSLF form to the government, so I helped her fill it out. We mailed it into this place called FedLoan Servicing, eagerly awaiting the good news that we would save tens of thousands on our debt.
FedLoan Servicing Got Involved and Torpedoed Us
So now the fun stuff, seeing how much money we lost because of them.
If you’re like me, you had no idea that submitting the certification form for the loan forgiveness program would forcibly transfer us to FedLoan. We felt ok with NelNet, our previous servicer. We thought that we would receive an answer directly from the Federal Government about our education assistance. When we opened the letter though, FedLoan Servicing answered us instead.
Quick backstory. Christine had consolidated her loans in 2012. She had made payments for three years at that point on Income-Based Repayment, so we were expecting to see 36 credits towards the 120 needed for loan forgiveness and go out on the town to celebrate.
Somehow FedLoan Lost Years of Payments, Oopsy Daisy!
Then we open the letter and look at the first page. We flipped through the document that they sent us, and half the loans said about three years of credit, as we expected.
Additionally, we kept flipping through the other pages and our mouths dropped. The other half of her loans only had 1 month of credit towards public service loan forgiveness.
Of course, we tried to get in touch with them and figure out what happened. By and large, they were completely useless.
We’re pretty sure that FedLoan lost the payment history when the loans transferred over from Nelnet on 50% of her $124,000 in debt. That means the awesome loan forgiveness benefit literally evaporated before our eyes. It’s not just us though, there’s a bunch of lawyers suing FedLoan right now because of their shoddy accounting practices.
How Do I Calculate that $20,000 Cost thanks to FedLoans?
To analyze our debt situation, I built a spreadsheet that’s the flagship tool for Student Loan Planner, the handy free student loan calculator. You can get it for free by clicking on the button below or entering your email at the bottom of the post. Without going too deep in the weeds, our cost under PSLF for the $124,000 we owed would have been about $108,000.
We found a pretty good deal for a 2.2% 5 year variable rate that we figured would cost us about $128,000 since we were going to pay it off in a couple years. Hence, the difference between those two strategies was about $20,000.
Thanks to FedLoan Servicing, we abandoned PSLF. If we had to start over working towards PSLF at 1-month credit on half her loans, we would pay a 6.8% interest rate for 10 years and get no forgiveness. She was almost out of training by the time we figured out that we needed to submit the loan forgiveness forms. Our window of making small monthly payments that would count towards PSLF had left us.
FedLoan Servicing Problems My Clients Are Dealing With
One of the reasons I felt like it was fair to share our loan servicing issue is because I know that it’s not an isolated issue. After all, I’ve spoken with hundreds of clients on their student loan strategies. Here’s a sampling of problems the horrible FedLoan customer service is inflicting on them.
Honestly, I am still fighting FedLoan to be consistent in honoring and publishing months paid across all of my loans. I have concern for them trying to scrap my existing credit if I make any waves
I’ve switched my direct loans to FedLoan servicing, but from what I’m seeing, it says I have made 0 qualifying payments. I’ve made 12. What gives?
FedLoan is telling me I have to make a huge payment on the Standard 10 year plan before they’ll let me re-certify for IBR. Can’t I pay $5 on a one month forbearance?
I refinanced some of my loans and asked FedLoan multiple times to only refinance the ones with the highest interest rates. I opened my statement, and they applied it equally to everything, even the ones with lower rates than I was refinancing at.
That Time I Heard a FedLoan Compliment
Remember I’ve spoken with a large number of borrowers who had loans with FedLoan Servicing. I’ve heard positive feedback maybe one time.
The compliment? “The rep was unusually helpful and nice.” Hardly a ringing endorsement.
What FedLoan Servicing Problems Are You Dealing With?
I’ve heard and seen all kinds of horror stories with FedLoan Servicing. Can you one-up me with your story? Post it in the comments. Maybe you’ve:
- Had a rep tell you that you were on a payment plan that you actually weren’t even on (seen this one a lot)
- Called them a dozen times to accomplish a basic loan consolidation
- Been put on forbearance or deferment when you could’ve been on an income-driven repayment plan
- Asked the same question multiple times to different reps and gotten a different answer each time
What I’m really looking for is if you can top our story of losing out on $20,000 thanks to the folks at FedLoan? Definitely let’s compare our misery. Remember you can also (and should) submit complaints about your FedLoan customer service with the Student Loan Ombudsman’s office.
Call this FedLoan Phone Number if You’re Having Major Problems
I discovered something recently that should help a lot of you out there with chronic FedLoan issues. The company recently created a FedLoan Ombudsman hotline. If you have issues with payment count, forbearance, or anything that the phone reps are clueless on, call this FedLoan phone number: (717) 720-7605.
If you call FedLoan Servicing’s phone number listed on their website, 1-800-699-2908, you will go into the general help queue.
That means risking getting someone who has no idea how to help and who will say anything to get you off the phone.
Some of my clients and readers report having their complaint fixed in two weeks instead of the usual six months when they call the FedLoan Ombudsman line instead of the generic phone number. To the extent that there’s a FedLoan VIP contact, this is it.
How to Get Rid of FedLoan Servicing as Your Loan Servicer
While it’s true that you’re somewhat randomly assigned a student loan servicer, it’s not true that you can’t get rid of FedLoan. Like anything, there are pros and cons that you need to carefully consider.
The two best ways to get rid of FedLoan are either
- Consolidate your federal student loans through studentloans.gov. You’ll need to specifically check the box next to a different loan servicer’s name. Unless you’re going for the PSLF program, we recommend Great Lakes Student Loan Servicing. We surveyed hundreds of our readers, and they scored a 3.8 out of 5 stars (FedLoan was 2.7 out of 5).
- Refinance your student loans. You only want to do this if forgiveness is out of the question. If you refinance, you can’t take it back. Dumping FedLoan is definitely not worth losing out on all kinds of federal benefits and protections unless you’re positive you will be paying down the debt rapidly. If you refinance, your loans are sent to a new servicer with better customer service.
Consolidating Student Loans to Dump FedLoan
The best time to consolidate student loans is immediately following graduation. The default grace period is 6 months until you begin repayment.
By consolidating, you can start payments in only two months, which gets you credit towards forgiveness more quickly. Also, you’ll benefit from interest subsidies more rapidly if you’re on the REPAYE plan.
The downside to consolidating is that you lose any credit you’ve built up towards loan forgiveness. This is because you’re creating a brand new loan. Hence, if you’ve paid for several years already on an income driven plan, think twice before consolidating.
If you plan to receive Public Service Loan Forgiveness, you’re going to want to stay at FedLoan. The tracking FedLoan performs towards your required 120 months of credit is worth the pain of dealing with them (imagine trying to prove it years later, you don’t want to try!)
However, if you’re positive you will use the 20-25 year forgiveness options or refinance eventually, then you might as well take advantage of the student loan consolidation loophole. Consolidation is the one time you get to choose who handles your student loans.
It’s the number one opportunity to get rid of a lousy loan servicer like FedLoan.
Refinancing Student Loans Away from FedLoan Servicing
There’s an epidemic of people abandoning PSLF who are making huge mistakes. Whenever I present a student loan plan to someone and the projected savings are in the six figures, it’s usually because they were thinking about ditching PSLF.
If you work for a private sector employer, you don’t qualify for PSLF.
If the ratio of your student debt divided by your income (debt to income ratio, or DTI) is above 1.5 and will be for a while, you need to think long and hard before refinancing.
However, if you
- Work in the private sector, AND
- Your debt to income ratio is below 1.5 (meaning you owe $150,000 and earn more than $100,000 annually, for example)
You should refinance. You can take our quiz to make sure of this.
The main benefit is getting a lower interest rate and picking up a cash back bonus.
However, a huge fringe benefit is that the new owner of your student loan wants payments collected by an organization that’s not utterly incompetent.
That means you will have your loans transferred once and for all to a servicer that actually cares.
Like I said, just make totally sure that refinancing is definitely what you should be doing as your overall strategy first.
Thank You to FedLoan For Pushing Me to Found Student Loan Planner
Our experience with FedLoan was so bad. I thought that there had to be a better way to get expert help on student debt. Moreover, I felt like graduate professionals with the highest debt loads received extremely bad service that cost them a ton of money in unnecessary student loan payments.
So after helping my fiancee analyze her loans, I helped some of our friends, and the student loan calculator I built went viral. That’s why I’m writing to you today. I do flat fee consults to solve student loan confusion over how to save the most money paying them back.
If You’re Not Sure You’re Managing You Loans in the Best Way, We Can Help
If you’re on IBR, ICR, filing taxes separately, have private loans with rates over 8%, not maxing your retirement accounts, or not saving for the tax penalty of private sector loan forgiveness, check out our consult service.
Average client savings have been around $62,000 over the 10-25 year period the loans will be around. We’ve consulted on more student debt than anyone else in the country, so the more complex your situation the more we can help.
Hopefully one day all the consolidation factories promising “Obama Student Loan Forgiveness” or “Trump Student Loan Forgiveness” will shut down. Sadly, that day will only come when the Department of Education fires FedLoan Servicing or FedLoan cleans up its act. Look forward to reading your questions and stories below.