Editor’s Note: In response to the coronavirus pandemic, as of March 13, 2020, the Trump Administration has halted interest payments on federal student loans. Please note that this applies to federally held student loans only and may not apply to your private student loans. Also note that student loan payments are still required, however your entire payment will now be made toward the principal of the loan. Check with your student loan provider for more information.
FedLoan Servicing has had a pretty bad run lately. In fact, it’s been downright miserable.
The student loan servicing giant has a history of apparent customer service and loan servicing issues. As of March 2019, a quick look at the FedLoan profile at the Better Business Bureau shows well over 600 complaints. Ouch.
Over the last 18 months, however, things have gotten considerably worse for FedLoan.
The Massachusetts Attorney General’s Office filed suit against the student loan servicer, alleging the mishandling of loans under two separate federal loan programs affecting teachers and other public servants. The State of New York has filed a similar lawsuit, and federal lawmakers are also pushing for investigations into the company’s handling of certain student loan programs. As of the date of this publication, the lawsuits mentioned are still active.
So, what options do you have if FedLoan is your loan service provider? Well, it depends on your circumstances.
If you intend to pursue any type of federal repayment program, your options are extremely limited. However, in addition to these specialized forgiveness programs, FedLoan services other types of federal and private student loans. In that case, refinancing your student loans through a private company could also be an option.
In this piece, we’ll look at some of the problems that borrowers have faced with FedLoan Servicing. We’ll also explain why these issues matter and provide some alternative options for handling your loans.
As always, be sure you completely understand the pros and cons of any decisions you make concerning your student loans before you pull the trigger.
Refinancing Your Student Loans: Top Picks
Credible [Editor’s Choice ] – Credible is our top spot for refinancing your student loans. While not a lender themselves, Credible compares offers from multiple lenders all in one convenient place. The process takes less than two minutes, so you can see real numbers from several lenders in no time. You’re also eligible for a bonus of up to $200 when you fund through Credible. Read the review | Learn more here.
SoFi – SoFi is another one of our private lenders for refinancing your student loans. In fact, SoFi is one of the few private lenders who can either refinance or consolidate your student loans. With fixed rates starting at 2.99% APR*, no hidden fees, and a credit score of only 650+ needed for possible approval, this company is hard to beat. Read the review | Learn more here.
Who Is FedLoan Servicing?
If you’ve gone to college, chances are you ended up with some federal student loans to repay (I know I did…). While many of these loans are administered by the federal government, the government doesn’t have the time, manpower, or desire to deal with collecting payments and handling repayment issues. So, they hire contractors to do it for them.
FedLoan Servicing is one of nine contractors charged with servicing federally held loans. The Pennsylvania Higher Education Assistance Agency (PHEAA), parent company of FedLoan Servicing, is one of the nation’s largest student loan servicing providers – serving over four million students through its various subsidiaries.
What is Student Loan Servicing?
So, what does FedLoan do exactly?
As a student loan servicer, FedLoan collects loan payments, addresses any repayment issues, and assists borrowers with enrolling in certain income-based repayment (IBR) and income-driven repayment (IDR) plans. Additionally, FedLoan may provide assistance with federal student loan consolidation, payment deferrals, and more. Borrowers can manage their loans held with the company by using the myFedLoan platform.
FedLoan is also the only provider tasked with servicing loans made through the Public Service Loan Forgiveness (PSLF) program. For those who qualify, this federal program forgives the balance of a borrower’s federal student loans after 10 years of both public service and qualifying student loan payments. (Note: Those who qualify may include employees of federal, state, or local governments, employees of tax-exempt not-for-profits, and employees of other not-for-profit organizations providing certain qualifying public services.)
Additionally, FedLoan is tasked with servicing the Teacher Education Assistance for College and Higher Education (TEACH) grant program. This program provides teachers with grants totaling up to $4,000 a year. To receive the grant, a teacher must agree to teach at facilities serving low-income families for at least 4 years.
Many of the recent alleged problems with FedLoan originate from these two programs.
Reported Issues with FedLoan Servicing
According to an August 2017 complaint filed by the Massachusetts Attorney General’s Office, FedLoan is accused of “misprocessing” borrower applications for income-driven repayment (IDR) plans, resulting in marks against the borrower for late payments. The AG’s office goes on to say that these “late” accounts were then improperly placed into forbearance, resulting in additional payments due and a delay in the promised loan forgiveness for the borrowers.
Additionally, the complaint alleges that some borrowers were overcharged on their Fedloan Servicing payment for these plans, wrongly allowing FedLoan to collect tens of thousands of dollars from Massachusetts borrowers that they did not owe. These allegedly improper overcharges were then rolled over to the following billing cycle, making it harder for borrowers to meet their payment obligations toward the program. To top it off, the complaint alleges that PHEAA has been notified of these issues and has refused to rectify the matter, blaming the borrowers instead.
The New York Attorney General’s office also filed suit against PHEAA in October 2019. This suit outlines similar complaints as alleged in the suit brought by Massachusetts.
In response to public outcry and the various lawsuits, federal lawmakers are also primed to get involved. As of October 29, 2019, a group of 23 senators are demanding a federal investigation into FedLoan’s handling of these government-backed programs, calling upon the Consumer Financial Protection Bureau to lead the charge.
Although the main issue stems from the federal loan forgiveness programs, there are also some apparent problems related specifically to the TEACH grant program. NPR has reported that FedLoan improperly converted thousands of TEACH grants to loans due to minor paperwork errors. Then, the company allegedly added interest, resulting in tens of thousands of dollars of new debt for teachers who had expected to be receiving grants instead.
Additional complaints and accusations against FedLoan from borrowers can be found at the Better Business Bureau website.
Keep in mind that, at this point, these are all just allegations. FedLoan’s parent company, PHEAA, disputes these claims and says they are committed to resolving the issues within the guidelines set forth by the U.S. Department of Education.
How Can This Affect You?
While most of the complaints stem from problems with IBR/IDR/PSLF plans and the TEACH grant program, these aren’t the only type of loans serviced by FedLoan. In addition to these specialized programs, they also service other types of federal and private student loans.
So, even if you aren’t participating in an IBR/IDR program, FedLoan could still be servicing your loans. Mistakes with any loan servicing provider can be extremely detrimental to your financial health. Some of the biggest problems might include:
- Additional Payments and Interest – If your FedLoan Servicing payment is handled improperly, it could result in you paying more – potentially thousands of dollars more – than you should in payments and interest.
- Loss or Delay in Benefits – Accounts marked as late or delinquent could result in the loss or delay of promised benefits (like loan forgiveness). Getting “current” could also cost you more money in additional payments.
- Credit Issues – Loan servicing providers will report your payment history to the credit bureaus. Late or delinquent accounts can negatively impact your credit, regardless of whether it was your fault or a mistake made by the loan servicing provider.
While paying more than you should is the most obvious problem, marks against your credit can also damage your financial health for years to come. That’s why it is important to stay on top of any loan you borrow. Review your bills on a monthly basis and correct any mistakes immediately.
Additionally, I suggest getting a free credit score from a website like Credit Sesame. With this free program, you’ll be able to track your credit score on a monthly basis, allowing you to see any sudden changes in your score that may indicate a problem. You’ll also receive alerts when new accounts are opened in your name, helping you to identify and combat identity theft early.
FedLoan Problems: Here Are Your Options
If you’ve had problems with your FedLoan Servicing payment, you’re likely wondering what you can do about it. Can you simply switch loan servicing providers?
Here’s the short answer: Maybe.
For borrowers who plan to use the PSLF program for loan forgiveness or the TEACH grant program, you’re pretty much out of luck. FedLoan is currently the sole service provider for these programs. So, unless you choose to forgo those programs and do a private refinance (making you ineligible for either program), you’re stuck with FedLoan.
When it comes time to repay other loans serviced by FedLoan, you may have some options, including:
- Federal Loans – All federal loans are initially assigned to a service provider, and you are not allowed to choose that provider. Once assigned, however, you may choose to consolidate your loans with another lender or refinance your loans through a private lender. Keep in mind, private refinancing makes you ineligible for certain benefits provided through federal loans.
- Private Loans – Private loans may be refinanced through other private institutions at your discretion.
Consolidation vs. Refinancing
This may be a good time to mention the difference between consolidating your loans and refinancing. Here’s a brief introduction to both:
- Student Loan Consolidation – Consolidation is a popular option which refers to combining all (or some) of your federal loans into a single loan called a Federal Direct Consolidation Loan. Your new loan’s interest rate is determined by the weighted average of the loans you consolidate. Keep in mind that student loan consolidation is generally accomplished through your current loan servicing provider. It’s also important to note that if you make payments prior to consolidating your loans, they may not count as qualifying payments toward any special repayment or forgiveness program (like PSLF) – meaning you’d have to start the process over, extending the time it takes to get your loan forgiven.
- Student Loan Refinancing – Like consolidation, refinancing student loans means combining multiple loans into a single loan. The new loan is offered by a private lender who typically determines your interest rate based on your creditworthiness. It’s important to note that privately refinancing a loan makes you ineligible for certain federal student loan benefits programs (like PSFL, IBR, deferment options, and more), so it isn’t the best option for all borrowers.
5 Alternatives to FedLoan
If you’ve decided that you are unhappy with FedLoan or that refinancing may be a benefit to you, here are some of our favorite companies to check out:
If you’re considering refinancing your student loans, Credible is the first place we suggest looking. Although they do not directly provide loans, Credible allows you to compare offers from multiple lenders side-by-side. It’s like window shopping for student loans!
The process is easy and it takes less than two minutes. Just fill out a quick questionnaire and you’ll be able to see real rates in seconds. You’ll also get a bonus of up to $200 if you refinance through their site.
Since 2011, SoFi has a history of offering excellent student loan rates and great customer service. SoFi offers refinancing of both federal and private student loans, requiring a minimum loan of $5,000 to refinance in most states ($10,000 for California residents). Fixed and variable rates are available with terms spanning from 5 to 20 years.
Our favorite thing about SoFi is that, while they require at least a 650 credit score to qualify, they don’t base your interest rate entirely on your score. Instead, they also consider your employment history, the merit of your account, and other factors. It’s fairly unique and worth checking out.
- Variable rates starting at 2.25% APR*
- Fixed rates starting at 2.99% APR*
- Terms of 5, 7, 10, 15, and 20 years
- No origination fees or prepayment penalties
LendKey is another excellent option for refinancing your student loans. Again, competitive rates for various types of federal and private loans are available here. They offer both fixed and variable rates.
At LendKey, loans are financed through community banks and credit unions. They offer flexible repayment options, no origination fees, and terms of up to 20 years.
- Variable rates starting at 1.98% APR
- Fixed rates starting at 2.99% APR
- Terms of 5, 7, 10, 15, 20 years
- No origination fees
Offering competitive fixed and variable rates, Earnest is another option for refinancing your student loans. While credit scores are a factor in their lending decisions, they don’t provide the whole picture. Unlike some competitors, Earnest bases your approval and rates on a merit-based points system where you earn points for the responsible financial decisions you make.
Additionally, when you utilize their Precision Pricing feature, Earnest uses your own budget to determine your monthly payment amounts. Then, they build your repayment terms and plan around what you can reasonably afford.
- Variable rates starting at 1.99% APR
- Fixed rates starting at 2.98% APR
- Terms of 5, 7, 10, 15, 20 years
- No origination fees or prepayment penalties
CommonBond allows borrowers to refinance both private and federal loans. Their goal is to offer simple, affordable, transparent rates. Both their fixed and variable rates are competitive, making them one of our favorite lenders to consider. The $100 signup bonus for a funded loan doesn’t hurt either.
Additionally, CommonBond does some really neat social outreach. They’ve teamed up with Pencils of Promise to help kids around the world gain an education. For each loan they fund, they also fund the education for one child for an entire year.
- Variable rates starting at 2.70% APR
- Fixed rates starting at 3.20% APR
- Terms 5, 7, 10, 15, and 20 years
- No origination fees or prepayment penalties
- $100 signup bonus
FedLoan Servicing Problems: Final Thoughts
If you are experiencing issues with your student loans serviced by FedLoan, you can contact FedLoan Servicing with general questions directly at:
P.O. Box 69184
Harrisburg, PA 17106-9184
For credit disputes, use the following:
FedLoan Servicing Credit
P.O. Box 60610
Harrisburg, PA 17106-0610
The U.S. Department of Education provides this guide for resolving disputes about your loan. Additionally, you can file a complaint with the Consumer Financial Protection Bureau here. For complaints that have not been resolved, or for additional complaints against a resolution with which you disagree, you can contact the Federal Student Aid Ombudsman Group here.
Remember, before filing a complaint, it’s important to fully understand how your loan works and what your own responsibilities are. If you still believe there is a problem, be sure to document all the issues and communication every step of the way.
Thanks so much for reading, and good luck!