The student loan situation in the United States continues to be a pressing concern for millions of people, affecting their credit scores, monthly budgets and savings for home ownership and retirement. In April of 2016, the Department of Education reported that more than 40 percent of those with student debt — almost 10 million Americans — were behind on payments. Additionally, roughly 3.6 million people hadn’t made a payment toward their debt in more than a year and were in default.
When you take out a federal student loan, the government passes off billing and other administrative services to a private student loans servicing company, also known as a loans servicer. With so many student loan servicers in operation today, it can be difficult to remember the differences between them, including their regulations and payment schedules.
So, what should you expect if you’re working with FedLoan Servicing, one of the largest federal loan servicers in the country? Here’s what you need to know:
When it comes to Department of Education federal loan servicing, you could be working with any number of companies. The DOE currently has a nine-company list of student loan servicers for federally held loans. It includes CornerStone; Granite State – GSMR; Great Lakes Educational Loan Services, Inc.; HESC/EdFinancial; MOHELA; Navient (formerly Sallie Mae); Nelnet; and OSLA Servicing.
However, the federal student loan servicer you’re likely working with is FedLoan Servicing (sometimes misspelled by customers as “Fed Loan Servicing” or “Fed Loan”). FedLoan, which was established in 2009, is one of the two divisions of the Pennsylvania Higher Education Assistance Association (PHEAA).
In other words, PHEAA operates both FedLoan Servicing, which performs federal loans servicing (as the name suggests), and American Education Services, which performs student loan servicing for private loans and loans made under the Federal Family Education Loan (FFEL) program. So, if you see the PHEAA acronym anywhere on your bills or documents, don’t get confused; it’s just the parent company of FedLoan Servicing.
Like any other student loan servicing company, FedLoan Servicing doesn’t actually own the debt that you owe. When you make payments on your debt, you’re sending them to the government, and FedLoan Servicing is acting as the intermediary between the two of you.
The job of a fed student loan servicing company goes well beyond just sending out a bill every month; the company also provides services, resources and assistance to its clients.
Of course, its most prominent role is to collect and process payments. Soon after the federal government pays the first loan out to you, the servicing company will encourage you to create an online account to track the amount of your debt and interest while you’re in school. The easiest way to start making payments is to sign up for direct debit so that the money is automatically taken out of your bank account every month. By using direct debit, you may also qualify for a slight reduction in your FedLoan student loan’s interest rate.
Loan servicers like FedLoan can also help you change your repayment plan from the standard 10-year plan that you’ll initially receive. If you find this plan too burdensome, you can contact your servicer to find out if you’re eligible for an income-based repayment plan such as REPAYE, which ensures that your monthly payments will never be higher than 10 percent of your discretionary income. If you have multiple loans and want to pay more than your monthly bill requires, you can also decide to pay off the ones with the highest interest first, which will save you money over time.
Finally, loan servicers can help you postpone your loans if you qualify. If you run into financial difficulties, you can contact your servicing company and apply for forbearance or deferment. Forbearance delays your payments temporarily, but interest still accrues on your account. Deferment also delays your payments, but your account does not continue to accrue interest. You can also ask your servicing company about eventually qualifying for loan forgiveness if you’re going to be working for the government or a tax-exempt, nonprofit organization.
As mentioned above, direct debit is the fastest and most convenient way of making a FedLoan payment. However, FedLoan provides a number of options, including payment via the internet, mobile app, phone, mail and third-party bill pay services.
If your income has increased and you feel comfortable with paying more than the monthly minimum, you can contact FedLoan and do what’s known as “paying ahead.” This will wipe out your loans sooner and save you future interest fees. However, if you don’t specify which loan to send your extra payment to, it will be applied to a future bill and distributed evenly between all of your loans. Unless your FedLoan student loans all have the same amount, interest rate and conditions, this likely isn’t the best choice for your finances.
FedLoan allows you to direct payments to specific loans so that they can be paid down faster. There are generally two main strategies for eliminating multiple debts: the debt “snowball” method and the debt “avalanche.” In the snowball strategy, you apply your extra payments to the smallest debt first and keep doing so until it’s paid off. Then, you move on to the next smallest debt, and you repeat the cycle until all your debts are paid.
This gives you the psychological satisfaction of seeing a debt disappear sooner and can encourage you to continue your good financial habits. However, unless your smallest debt also has the highest interest rate, you’ll be losing money in the long run. On the other hand, in the avalanche strategy, you pay off the debts with the highest interest first, which eventually saves you time and money but can be discouraging if your debt is very large and takes a long time to disappear.
If you’re unhappy with the quality of service you’ve received from FedLoan Servicing so far, you might be searching for a student loan servicers ranking or a list of the top student loan servicers so you can switch to a better company. Unfortunately, if you don’t like working with a particular company, there’s not much you can do other than hope the government reassigns you to a different one, which isn’t an uncommon occurrence.
There are still two ways you can choose a new federal loan servicer, though. One involves consolidating your loans into a single loan. This lets you decide between four of the different loan servicers: FedLoan, Great Lakes, Navient and Nelnet. In 2013, the Consumer Financial Protection Bureau released an analysis showing that FedLoan ranked third out of these four servicers in terms of survey ratings from borrowers, so it may be worthwhile to compare your options.
However, loan consolidation isn’t a decision to take lightly; it has significant benefits and costs. Consolidated loans generally have a lower interest rate and lower monthly payments, but they can end up being more expensive over time because they offer a longer repayment period than the original loans do.
The second way you can choose a new provider is to refinance your federal student loans and transfer your debt to a private company, which will offer you a new loan with new terms. But, this will mean giving up some of the advantages of a federal loan, including more flexible repayment plans, the possibility of loan forgiveness, and a fixed-rate guarantee.
When shopping around for a student loan servicer, you should consider these key factors — the interest rate (and whether it’s fixed or variable); the length of the loan; and special conditions, such as the maximum amount of the loan, any available discounts, and any limits based on school or location.
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