Photo by Audra Fenimore
Dr. Tony Bartels, pictured with his dog, Addi, is the resident expert on student debt at the Veterinary Information Network. Among the resources Bartels provides, through the VIN Foundation, is Climbing Mt. Debt, an education series to help veterinary professionals understand their student loans.
Anyone who has heard me talk or write about student debt probably knows how I feel about federal student loan servicers. As I've discussed in many Climbing Mt. Debt sessions, all of the loan servicers are terrible. FedLoan Servicing is no exception.
So you might expect that when FedLoan, operated by the Pennsylvania Higher Education Assistance Agency, announced that it would be getting out of the student loan servicing business when its contract ends Dec. 14, I celebrated.
On the contrary. I thought, "This is going to be a disaster."
Let me explain.
At the moment, we are navigating an unprecedented stoppage of all student loan payments and interest, under pandemic student loan forbearance. The pause is scheduled to end in the first half of 2022, which portends bumpy times ahead as the system restarts the processing of payments. I wouldn't be surprised if some errors ensue. Now consider that one of the biggest sources of mistakes in the loan repayment process happens when loans get moved from one servicer to another.
I can attest to this: My wife and I both have had loans moved from one servicer to another in the past, and we both experienced mistakes. My repayment plan type and amount was not moved correctly, and my unpaid interest was capitalized. My wife had a loan with a zero balance marked as unpaid. (Both issues were eventually resolved, but surprisingly, it was harder to get the zero-balance mistake fixed than the inappropriate capitalization and repayment plan/amount goof. I suspect that had to do with my wife's loan servicer, Navient, which has shown itself to be one of the most terrible of loan servicers.)
Back to FedLoan: It is the servicer for 25% of U.S. federal student loan borrowers, making it the largest servicer by number of borrowers, as well as by the size of loan balances serviced.
Shortly after FedLoan said it was quitting, a second servicer, Granite State Management Resources, said it, too, would not renew its federal contract that expires Dec. 31. Then Navient announced that it received approval to transition out of the business. Navient is handing its borrowers to the servicer Maximus and its federal loan servicing subsidiary, Aidvantage. That brings to more than 15 million the number of borrowers affected by servicer departures this year, according to figures reported by Yahoo! Finance. That's about one-third of all U.S. student loan borrowers.
Unlike with Navient, there are no named replacements for FedLoan and Granite State. Chances are that borrowers with either of those servicers will have their federal loans moved to one of the remaining federal loan servicers. I have heard from colleagues of a few loans being moved already. (Borrowers do not get to choose their loan servicer, unfortunately, except when they convert their multiple federal loans into a single Direct Consolidation Loan, ideally immediately after graduation.)
I'm particularly concerned about the departure of FedLoan because it is the official monitor for Public Service Loan Forgiveness. PSLF is a program through which borrowers who work for the government or 501(c)(3) nonprofit organizations can have their student loans forgiven, tax-free, after making 120 qualifying monthly payments.
Whenever a borrower indicates to the government (by submitting a PSLF Employment Certification Form) that they hope to earn loan forgiveness through public-service employment, their loans are moved to FedLoan. As of now, there's been no word on who will become the official PSLF monitor when FedLoan leaves. I presume — and certainly hope — a servicer will be designated before FedLoan's contract expires in December to minimize the amount of loan moving and further confusion for borrowers working toward PSLF. (For more on this, see Editor's note.)
One of the original conditions for eligible PSLF qualifying payments is to use an income-driven repayment (IDR) program. As a result, FedLoan has a lot of experience with IDR.
Generally, IDR programs are the best type of repayment plans for borrowers like veterinarians who have high levels of educational debt relative to their incomes, regardless whether they are pursuing PSLF. So for years, I've been encouraging new graduate veterinarians to use a Direct Consolidation Loan immediately after graduation, in part to select FedLoan as their servicer — to help make IDR or any PSLF activity easier. This is why I didn't cheer when FedLoan decided to quit the scene.
PSLF has a reputation for being poorly constructed from the outset, as well as poorly administered. Acknowledging that, the U.S. Department of Education recently announced an overhaul of the program, including a temporary limited PSLF waiver. Reform is coming not a moment too soon, and whether it will succeed in significantly simplifying things is still to be determined. Unless the program structure is changed meaningfully, another servicer is unlikely to be able to do a better job administering PSLF than FedLoan. I do expect the waiver to help ease the transition for any new PSLF monitor because the answer to the question "Am I eligible for PSLF?" is much more likely to be "yes" under the waiver's expanded provisions (see sidebar).
After FedLoan exits, a couple of the issues I anticipate will pop up unique to PSLF are:
- Credit for the borrower's months of qualified service may not be transferred correctly. For those who have had credit acknowledged using an employment certification form, a record exists in your federal student aid data file. Make a copy of this record so that if there is a mistake during transfer, you can get it rectified.
- Any PSLF Employment Certification Forms that are in process will likely have to be submitted again if processing isn't completed before the servicer changes.
General areas where mistakes potentially will surface are in balance amounts, repayment plans, minimum monthly payments and IDR renewal dates. Another is inappropriately capitalized unpaid interest.
You may not be able to completely avoid the mistakes that happen when loans are moved, but there are things you can do to reduce the chance of errors. By being prepared, you can identify and quickly correct any mistakes that are made.
First and most importantly, log into your loan servicer and federal student aid accounts and make sure your contact information (name, address, email, phone number) is up-to-date so that you'll receive timely correspondence about your student loans.
Gather the details of your student loan accounts. If you've been primarily relying on your loan servicer(s) to keep records for you, now's the time to make certain the records are in your possession. Download statements that you have access to and request older statements that might not be available for download.
Make sure you have complete records of your loan history with the servicer, including:
- how long you've been using your repayment plan (particularly if you're using IDR);
- your minimum monthly payments (prior to the pandemic forbearance period, which began March 13, 2020, and is scheduled to end May 1, 2022) and any recent payment schedules generated for your IDR plan; and
- for those pursuing PSLF, any logged PSLF time you have confirmed with FedLoan, including copies of any employment certification forms you've submitted, and review the new PSLF waiver to check if you are eligible for even more credit toward tax-free forgiveness.
Finally, as the pandemic forbearance period winds down, make sure you enroll or re-enroll in autopay with your new loan servicer to receive a 0.25% interest rate discount on your Direct Loans. Autopay is worthwhile even if your minimum monthly payment due at the moment is zero.
Just like when the pandemic forbearance period ends and we all resume loan payments (anticipated after May 1), it is going to take some time to work through the kinks and wrinkles. Keep your eyes open, ask lots of questions and tune up your patience.
About the author: Tony Bartels is a 2012 graduate of the Colorado State University combined MBA/DVM program, an employee of the Veterinary Information Network and a board member of the VIN Foundation. He and his wife, Audra, a small animal internist practicing in Denver, have more than $400,000 in veterinary-school debt that they manage using federal income-driven repayment plans. By necessity (and now obsession), Tony's professional activities include researching and speaking on veterinary-student debt, providing guidance to colleagues on loan-repayment strategies, and contributing to VIN Foundation resources. When he's not staring holes into his colleagues' student-loan data, Tony enjoys fly fishing, camping and exploring Colorado with Audra and their rescued canines, Addi and Maggie.
Editor's note: This article has been changed to reflect that the federal student loan payment pause has been extended through May 1, 2022.