Perhaps My Nightmare Experiences With My Student Loan Servicer Will Finally End

The Consumer Financial Protection Bureau announced recently that it would begin to supervise the seven largest “nonbank student loan servicers.” I’m pretty sure I’m not the only student loan borrower who yelled “finally!” at her radio when the announcement was made.

What is a “nonbank student loan servicer”? It’s that company you write your checks to or that sucks money out of your bank account every month to pay your student loans. They’re the ones you have to call if a payment doesn’t go through properly, if you need to file paperwork to change your payment plan, or if you need to defer your loans.

The CFPB’s press release is diplomatic and avoids pointing fingers, but most student loan holders know what a nightmare these companies can be to deal with, and how badly this is needed. Unlike my phone, credit card, and electric companies—and any company I make recurring payments to, for that matter—I’ve never encountered an industry more dead-set against providing user-friendly payment systems, clear instructions, and easy ways to manage your account.

My student loan debt is well above average—let’s say it’s enough to buy a nice house in the Midwest—but the nightmare stories I’ve piled up about dealing with my loans is pretty average.

My encounter this summer with one of the loan servicing companies that will be regulated by the CFPB is pretty typical. In August, I received an email from one of the big seven that notified me that the company would now be handling my U.S. Department of Education student loans. The note ensured me that the company was “working to make this transition as smooth as possible,” but having been through this loan transfer business more than a few times in the last decade, I was skeptical.

After sighing and mumbling a few expletives under my breath, I started to mentally list my questions. Why hadn’t I been notified earlier? What did this mean? Would I have to re-file paperwork I had just submitted a month earlier to my previous loan servicer to maintain my income-based repayment plan? The initial communications were vague and suggested that I send in a payment for that month by check, meaning the automatic payments I had set up had either been cancelled or suspended. It wasn’t clear.

Over the next few weeks I received more emails—they indicated that my loans had been transferred, and then that my automatic payment would be made soon. Shortly after, two letters from the new loan servicer appeared in my mailbox on the same day. One essentially provided the same information I had already received and the other asked me to—you got it—re-file documentation of my income.

I called the loan servicing company. The line was so busy a recording asked me to leave my number so a representative would call me back later that evening. In about 20 minutes, I was on the line with a real human. Maybe this wouldn’t be so bad after all.

I wanted to confirm that I would indeed have to resubmit my paperwork. The representative—who was nice and patient, even though she was probably dealing with hundreds of angry borrowers every day—told me I should submit it. They probably had the paperwork in their files, but it could take up to a month to process. I imagined cardboard boxes of paper files stacked around her and the rest of the customer service employees. I also wanted to confirm that my payment for that month would go through. She was non-committal and vague, and I ended up making a manual payment. Of course, later that month, the automatic payment went through, negating the entire purpose of the income-based repayment plan.

I re-submitted my payment plan paperwork the next day and when I got an email back saying I had been approved, I thought the storm was largely over. But I noticed in October that there was no bill for November—my automatic payment usually went through on the 21st of every month. Instead there was a bill due December 5. This seems like no big deal, but anyone who manages a budget and receives paychecks twice a month knows that a payment date change can throw off your bank balance and lead to overdrawn accounts and other unpleasant ways of losing even more cash.

I called again and found out that they moved the date—without asking me or notifying me—after my new payment plan had been approved. I’m sure there’s some company policy out there and some small print that makes the company think this is OK, but as a borrower who pays her bills on time, this was yet another irritant in my tumultuous experience with student loan servicers.

The CFPB would call my experience a “servicing transfer surprise.” That’s a nice way of putting it. It almost sounds like a kid’s birthday—with balloons and a cake decorated with zoo animals made of frosting. I probably wouldn’t be as nice.

What the company described as a “smooth” process was anything but. And I know this is really just the tip of the iceberg for many people. There are so many other problems with student loans and how they’re managed. Getting monthly overpayment to be applied to loan principal instead of reducing the next payment is another battle I’ve not only fought, but have to continually fight every time my loan gets transferred.

Depending on the loan provider, the process can be as easy as marking a checkbox, but it’s often unclear what we should be doing. Even the CFPB advises borrowers to send in letters to ensure overpayments go to the highest interest loan. But does it have to be this difficult?

These processes really do need to be clear given the numbers of Americans who hold student loan debt and the size of the student loan debt market. Outstanding student loan debt topped $1 trillion in the United States this summer, and the Federal Reserve Bank of New York estimates that 37 million U.S. households hold outstanding loan debt.

Perhaps even more startling: student loan default rates were up this year to 14.7 percent. These borrowers are buckling under the weight of these loans. And even those of us who can afford to make our payments are struggling to comply with the byzantine payment systems and no clear guidance from the people who take our money every month.

 

 

Christina Nelson is a writer and editor in Washington, D.C.

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19 Comments / Post A Comment

andnowlights (#2,902)

I had no idea that a U.S. Department of Education student loans could be taken over. Now I am going to be so paranoid that my husband’s last $17,000 in loans will be taken over before we can pay it off and it will cause all kinds of problems like that! Maybe if it’s not in repayment til 2017 it’ll be okay… we plan on starting in on it fast and furious in January and be done with it by May 2015.

Allison (#4,509)

@andnowlights neither did I and since my email from Mohela arrived before the one from the department of ed, I thought it might be a scam! No, just annoying.

WriteBikeBobbi (#3,938)

Our loan taken over. And then it was sold / taken over AGAIN. It was especially infuriating because our loan is $300,000+ (yay, medical school!) and the new company has yet to update our online file showing our accurate payment information, etc. They seem to think handling that amount of money is no big deal — while it’s a very big deal to us that it’s accurate and serviced professionally. I feel no confidence whatsoever. But of course each month they never fail to suck out $3,228 from our checking account. And the interest rate is ridiculous. They also randomly moved us from a 10-year payment plan to a 25-year payment plan at one point, which took me countless phone calls and letters to get reversed.

@WriteBikeBobbi How can they switch it from 10 years to 25 years without your permission, let alone without notifying you at all?!

wrappedupinbooks (#1,426)

This makes me feel very, very lucky my transition from the DOE to Sallie Mae went so smoothly. In the end, I wound up being happy about it, since Sallie Mae lets me allocate additional payments as I please, and the DOE didn’t. Fingers crossed Sallie Mae doesn’t decide to sell them on me.

Cedric0123 (#5,533)

@wrappedupinbooks – your loans were not sold from DOE to Sallie Mae, they were transferred. DOE’s contractor, that branded themselves as DOE, simply had their contract end. Your loan is still owned by DOE, and DOE oversees Sallie Mae, just like it did when the contractor that called itself “DOE” was your servicer.

WayDownSouth (#3,431)

I’m probably missing the obvious, but why is it an issue if the automatic debit happens on a different date?

@WayDownSouth If you have a budget where you have regular monthly payments – utilities this day, rent this day, childcare this day, whatever – then changing one payment to another day can screw up the budget. If you are timing your paychecks and your payments for all these various things, you might not be able to make all your payments out of one paycheck. For this author, a payment moved from the end of a month to the beginning could be bad because maybe they need to spend their beginning-of-the-month money on rent. There’s room in their budget for the loan payment from a later check.

WayDownSouth (#3,431)

@apples and oranges yes, that makes a lot of sense. Thank you

Cedric0123 (#5,533)

There’s one common misconception about student loan payments out there. Every payment that is applied, by law, first goes to fees, then to interest, then to principal. Even prepayments, which is what happened to this author. The manual payment she made was first applied to fees, then to interest, then to principal. The automatic payment was applied the same way. So, it’s not like there is “additional profit” being made here, because the loan isn’t going to cost more than it would have had the payment been made as scheduled. And, that’s true even if the next payment the author makes is on December 5, as her billing statement instructs.

The loan servicer here isn’t holding that payment and waiting to apply it until when the next due date hits. It was immediately applied. They are just assuming that the author intended that extra payment to cover the next month’s payment. Financially, though, the author is no worse off than she would have been (in terms of the amount of interest she will pay) than if she hadn’t had to go through this at all.

Transfers are annoying, yes, but the loan servicer isn’t scheming, trying to rake in more interest for the lender here. If we, as borrowers, really want loan servicing to improve, we first really need to understand some loan basics, so that we can focus our ire on things that matter, like CSRs giving you a different answer to a simple question each time you call.

aardvark (#3,451)

@Cedric0123 Some servicers won’t send you statements or do automatic withdrawals if you’re “ahead” in payments, so it does end up costing you money in the long run. Also, sometimes they will lump loans at different interest rates together and do an even payoff, so you can’t get your highest rate loan paid down without a lot of effort. These things are deceitful and do cost borrowers money in the long run, even if they look innocuous.

Cedric0123 (#5,533)

@aardvark But not sending statements or not continuing to make automatic withdraws if you’re ahead in payments puts you in no worse of a position than you would have been if, instead of being ahead in payments, you had made those payments separately on each due date. In fact, you’ll come out ahead.

As for automatic payments, you sign an agreement to get that service, and that agreement has terms that presumably say that automatic payments will cease if you’re paid ahead an entire month. For better or worse, student loans are sophisticated financial instruments that require us to do a bit of reading to determine what our rights are and the impacts that doing certain things will have on our financial standing. Servicers shouldn’t be hiding the ball, but mostly, all the information is sent to us—we just don’t read it, because who wants to spend an 30 minutes reading legalese on a billing statement when we’re stressed out about everything else?

Of course, grouping loans with different interest rates together sucks, and absolutely has an impact.

Allison (#4,509)

@Cedric0123 I’m baffled that you think the “take the extra payment and apply it to a future month instead” tactic is completely fine, especially when the company then cancels the automatic debit. No, you aren’t in a worse off position than you would be paying on time, but you aren’t trying to pay on time, you’re trying to pay down the principal faster, and they are undermining that choice.

Sloane (#675)

@Allison With my servicer, I had to select the option to keep the automatic withdrawal when I was ahead in payments. It was not the default, and in fact, the option was kind of buried on the website (i think I had to call the servicer to figure it out). In general, the website for my second servicer was awful, but customer service was always really good at getting me where I needed to be. It was annoying, indeed, but like @cedric0123 said, it didn’t put me in any worse position.

grog (#2,222)

Why the heck didn’t the CFPB name the 7 servicers?? As far as I can find out, 4 of them are: Sallie Mae, Great Lakes Educational Loan Services, Nelnet Servicing and the Pennsylvania Higher Education Assistance Agency. I’m wondering if MOHELA is part of the 7. That would be great.

aardvark (#3,451)

@grog I hope ACS is one of the servicers that is being regulated, because they are the worst. It took > 6 months and a threat that I would contact the ombudsman to correctly apply a payoff for one of my loans.

Allison (#4,509)

@grog this was immediately what I went searching for and I haven’t had any major issues with Mohela beyond the awful timing of the transfer notices (which is as much on the department of ed) but I’d feel better!

highjump (#39)

@aardvark I hate ACS so much.

Beaks (#3,488)

@highjump I have found them to be slightly less awful than MyCampusLoan, which had all of my Perkins loans and was utterly useless. Of course, ACS only has my magic 0% loan (historically low interest rates+ deduction for automatic payments+ deduction for some number of on-time payments= 0, apparently), so I’m less inclined to worry about them since I’m paying that loan off as slowly as possible for now.

Great Lakes was actually pretty okay, and super easy on the pay-off front (they even sent me prompt confirmation paperwork, unlike MyCampusLoan). At least their website was actually functional when I wanted to use it, on average.

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