Maria Botinas 288

Photo by Dr. Maria Botinas

A veterinarian who's been in practice for eight years, Dr. Maria Botinas calls student debt "a serious problem in a society founded on the freedom to create a life based on hard work and education."

While her two young children were eating breakfast one morning in March, Dr. Maria Botinas had a telephone conversation that threw her into a panic.

On the line was a customer agent from Navient, one of the largest servicers of student loans made by the U.S. Department of Education. Botinas, a veterinarian in New Jersey, had called the servicer to check on the status of paperwork she'd submitted to renew her loan payment plan under a program called Income-Based Repayment.

Botinas asked if the agent could tell her approximately what her loan payment would be following the renewal.

"Sure," the agent replied. After a moment, the agent delivered a piece of news that no strapped school-loan borrower ever wants to hear — especially not one who, like Botinas, owes hundreds of thousands of dollars.

"You're not qualified for the income-based repayment," the agent said.

"Excuse me?" Botinas responded in shock. She thought she might faint.

Income-based repayment, or IBR, is a program offered by the USDE that lets borrowers extend their payments over 20 to 25 years (depending on when they took out their first loan), rather than the standard 10 years. Monthly payments under IBR are keyed to the borrower's income, amounting to no more than 15% of discretionary income. The object of the program is to prevent loan repayments from being unaffordable. It also provides for loan forgiveness after 20 to 25 years of steady payments.

Botinas' student-debt balance is more than four times what she earns a year working full time. IBR — one of several income-driven repayment plans — is a lifeline for her. Botinas' monthly payments had been $450. Without IBR or a comparable plan, the payment would escalate to thousands of dollars per month. That is why the agent's words made her dizzy.

"With your family size and what you make, you don't qualify," Botinas heard her say.

Botinas, married with two children and a practitioner for eight years, protested that she doesn't make enough money to repay her loan on the standard 10-year plan. Although her income rose in the past year and Botinas anticipated that her monthly payment would rise commensurately, the increase wasn't enough to cover her nearly half a million dollars in debt without IBR.

But the agent said, "It doesn't matter what you owe," Botinas recalled.

Knowing that IBR has everything to do with what a borrower earns relative to what she owes, Botinas concluded that the agent didn't understand the situation. She hung up, then called back, hoping a different person at Navient would help clarify the confusion.

No such luck. The second agent had the same response. The only difference was that she presented Botinas with some dubious options for managing her debt, including putting it into forbearance, a status that allows a borrower to pause making payments (while interest accrues).

Botinas hung up. She called again later, this time asking to speak with a supervisor. Things only got worse. The supervisor offered the same conclusion (not eligible for IBR), was unclear in his explanations and was nasty, to boot, Botinas said. "He kept contradicting himself, and every time I asked questions, he would talk down to me."

The conversation became contentious. A second supervisor came on the line. The outcome was unchanged.

Relating the experience to the VIN News Service two months later, Botinas summed up, "Four people, all wrong."

It wasn't true that she no longer qualified for IBR. She confirmed that after sharing her story with colleagues and a veterinary student debt expert, shoring up her knowledge and confidence, and persisting in questioning Navient. About a week after the ordeal began, Botinas found someone at the loan servicing company who figured out the problem:

A contribution of $150 per month that Botinas receives as a benefit from her employer, Banfield Pet Hospital, toward her student loan payment, caused her account to be put in "pay-ahead status." Pay-ahead status is triggered when payments on top of the amount owed are received on an account.

A customer service agent whom Botinas reached by calling the main number — not a company higher-up — diagnosed the issue and turned off her pay-ahead status, fixing the mistake in a matter of moments.

A week later, Botinas received a call from a Navient representative who introduced herself as the supervisor of the supervisor whom Botinas had found to be condescending. "She said it took her so long to get back to me because she listened to every single phone call from beginning to end, and she said the way I was spoken to was not right, and she would take care of it," Botinas related. "She apologized that they gave me all the wrong information and said that if I had listened to them, I would have made a huge mistake."

'Do your own due diligence'

Employee student-loan-payment benefits such as Botinas' are becoming more common as employers compete for workers, many of whom carry substantial student debt. U.S. educational loan debt reached a record $1.4 trillion during the first quarter of 2019, according to Experian, a consumer credit reporting company.

Among recent veterinary school graduates, the average is five times that. According to the American Veterinary Medical Association, the mean debt of the 83% of veterinary college graduates in 2018 who financed their education with loans was $183,014.

According to Banfield, the largest veterinary general-practice chain in the world, more than 50% of its 3,600 veterinarians participate in at least one of its debt-relief program options. Launched as a pilot in December 2017, the Banfield Veterinary Student Debt Relief Program is now permanent.

Asked whether program participants besides Botinas have run into loan-servicing snags related to payment contributions from the company, Banfield said it knows of no others.

A statement provided by email from Wale Majekodunmi Sr., the company's Total Rewards director, reads in part: "We ... were disappointed to learn about this associate’s recent experience. Banfield does not have direct contact or relationships with student loan providers, nor do we have access to the student loan specifics of each associate taking advantage of our student debt relief program. We are not aware of any other such issues related to our debt relief program."

The potential for other veterinarian borrowers to encounter similar problems certainly exists, said Dr. Anthony Bartels, student debt consultant at the Veterinary Information Network. VIN is an online community for the profession and parent of the VIN News Service.

"Banfield is one of the largest employers of veterinarians, and 80% or more of new veterinarians have student debt, so the probability that this can happen is quite high," Bartels said in an interview. "Difficulties with the servicer are well documented," he added. "All of these [loan] servicers are terrible. Navient is just more documented, with the lawsuits and everything."

One of nine federal student loan servicers, Navient is the subject of multiple legal actions, including complaints filed by the U.S. Consumer Financial Protection Bureau and several state attorneys general. The suits generally allege that the servicer has provided systemically poor service and inaccurate guidance to borrowers.

Bartels, who assists veterinarians with educational debt, advising hundreds annually (including Botinas this year), said he's so accustomed to hearing borrowers relate incorrect information from their servicers that he often recommends sidestepping servicers entirely.

"My solution for many of them is to stop dealing with the loan servicer if possible and go through the studentloans.gov portal," he said. "You can often fix [the servicers'] mistakes by not dealing with them."

Asked about Botinas' case, Navient Vice President of Corporate Communications Paul Hartwick provided this response by email:

"Whenever a loan payment is made in addition to the minimum monthly payment — such as a payment from an employer or other third party — the overpayment is applied to the loan with the highest interest rate, unless the customer specifies otherwise. If the extra amount is equal to or more than the amount of a future minimum monthly payment, the customer can specify whether they want to be billed as normal the following month or advance their due date. Per Department of Education rules, which require a borrower to recertify their income every 12 months, if a loan is paid 12 or more months ahead, the borrower can no longer qualify for a lower payment under IBR.

"Student loan borrowers with an employer-paid student loan benefit can call us before those extra payments begin or can provide standing instructions online or via mail to set their preferences for the handling of overpayments – that is, which loan to allocate the extra toward and what to do if the extra is enough to cover future due dates.

"We strive to always provide excellent service to all of our customers, and if we make a mistake, we apologize and work to make things right, including retroactively applying any payments according to the customer’s preferences. ..."

Asked for the specific USDE rule stating that pay-ahead status disqualifies a borrower for IBR, Hartwick responded, "The rule is that individuals participating in a federal income-based payment program must re-certify their income every 12 months — and if a loan goes into paid-ahead status by 12 months or more, that can cause a complication."

What complication? Hartwick elaborated: "When an individual is approved for a income-based repayment program, they are put on a 12-month payment schedule. If an individual goes into a paid-ahead status for 12 months, the loan servicer is unable to calculate their next minimum payment and they are moved back to the standard repayment plan."

Bartels observed that the complication appears to reside with the Navient system rather than in USDE rules. The Code of Federal Regulations section on IBR (Title 34 Part 685 subpart 221) says nothing about pay-ahead status disqualifying a borrower from the program.

Bartels noted that some loan servicers (not Navient) have portals that allow borrowers to include employer contributions in their minimum monthly payment. "So if I had $450 due as my minimum and Banfield paid $150, if I had autopay set up through a servicer that allows this, they will count that $150 as part of my minimum and only deduct $300 for the rest of my payment automatically each month," he said. "That also helps to reduce the likelihood of this pay-ahead nonsense. But — it's inconsistently available."

Bartels previously has expressed concerns about the structure of Banfield's student debt relief program. That's partly because for borrowers who expect to reach loan forgiveness under IBR, he says, it does not make financial sense to pay more than the minimum due each month. This is true even considering that forgiven balances are subject to income tax, he says.

Those who choose to pay more than the minimum or who receive contributions that bump the payment above the minimum should be sure to turn off the "paid ahead" feature, he advised. "The default status for paid ahead is 'on,' so you have to request to have it 'off,' " he explained.

Under IBR, forgiveness requires borrowers to make "qualifying payments" for 20 to 25 years. (The period of required payments depends upon when they took out their first loan.) If a loan in pay-ahead status is paid ahead sufficiently, a borrower may be able to skip making a payment for a month or more. But doing so can interfere with the borrower's record of making qualifying payments toward forgiveness, Bartels said.

Robert Farrington, founder of The College Investor, a blog about investing and personal finance for millennials, said that falling into pay-ahead status "is the worst — it can really mess things up." He's written about the pitfalls of paying ahead, particularly for borrowers who hope to qualify for Public Service Loan Forgiveness, another USDE program, which has stringent rules about, among other things, making regular, on-time payments.

Like Bartels, Farrington wasn't surprised to hear that a loan servicer's call-center representative was misinformed.

"Borrowers need to remember that these are large companies, with large call centers, and while the employees usually are helpful, they make mistakes, as well. Furthermore, they are depending on the caller to ask the right questions, which may or may not happen," he told VIN News by email.

Farrington recommends that borrowers communicate with their servicers by email rather than telephone. "It prevents misunderstanding," he said.

Adam Minsky, a Boston lawyer whose practice is focused exclusively on assisting student-loan borrowers, hasn't encountered a case like Botinas' but noted that employer contributions can trigger a different unanticipated issue.

"As a general rule, borrowers must report all taxable income for purposes of calculating an income-driven repayment plan, and under the tax code, in certain circumstances, employer contributions or repayment assistance can be considered taxable income to the borrower," Minsky said by email.

As a survivor of student debt repayment woes, Botinas is dispensing a bit of advice herself. In an April 2 post on pawbark.com titled Student Loan Debt — When the Panic Hits, she wrote:

"Be aware that your student loan provider is most likely not giving you the correct information and you must do your own due diligence, [w]hether it is finding someone you or others trust to guide you, or spending the time to really understand what your options are. ... Whatever you do or however you handle your situation, talk about it, research and know you are not the only one."

Editor's update: After this story was published, a USDE spokesperson confirmed that paying ahead has no effect on IBR eligibility unless by paying ahead, the borrower's debt falls to a level such that he or she no longer has what the program deems a partial financial hardship.